Bankruptcy provides temporary relief from collection efforts and permanent relief from certain financial obligations. Those who file successful bankruptcy cases can discharge some of their debts, which absolves them of the obligation to pay those debts.
Eliminating certain financial obligations can help people prioritize other responsibilities, such as their mortgages. They can rework their budgets after a discharge to avoid accruing more debt. Bankruptcy can offer profound financial relief when people discharge eligible debts. However, not every financial obligation is technically eligible for a discharge during bankruptcy.
What debts may people still need to pay even after a successful bankruptcy filing?
Family support
Regardless of what challenges a parent may have faced, they cannot use bankruptcy to discharge their past-due child support obligations. Additionally, divorced spouses ordered to pay alimony or spousal support cannot discharge that obligation either.
Debts related to personal injuries
Some people owe money to others due to a court judgment. People subject to a judgment for a personal injury or wrongful death lawsuit may potentially owe others a debt of tens of thousands of dollars or more.
Recent tax debts
Individuals who fall behind on property taxes or income taxes can use bankruptcy to reduce secondary financial obligations, which can help them fulfill their tax obligations. However, they likely cannot discharge most of their tax debts. The one exception to this rule involves federal income tax debts that are three years old or older. Most other tax debts are not dischargeable.
Fraudulent debts
Debts assumed without an intent to repay them may not be eligible for discharge in a bankruptcy. Any kind of fraud, including financial misrepresentation when applying for credit, could prevent a filer from discharging the related debt they accrued.
Debts not named in the filing
People submitting paperwork to the courts in a bankruptcy case must generally include a comprehensive list of all of their eligible unsecured debts. If a filer fails to include certain debts in the paperwork submitted to the courts during the bankruptcy, they may not be able to discharge that debt even if the bankruptcy is successful.
As a closing note, student loan debt is often ineligible for a discharge, although there are exceptions in special, relatively unusual circumstances. Additionally, people typically cannot discharge secured debts, such as mortgages, unless they also rescind their interest in the collateral property.
Working with a bankruptcy attorney can help people ensure that they identify all the debts they can discharge and that they follow the appropriate procedures during a personal bankruptcy case. In truth, legal representation is generally key when it comes to identifying dischargeable debts and navigating the bankruptcy process as efficiently as possible.