Certain types of bankruptcy can allow you to discharge, or “write off” some kinds of debt. This means you liquidate any non-exempt assets you have to pay the debt and any portion left over is forgiven. It’s important to understand the difference between what types of debt can be discharged (and what types can’t) before you file for bankruptcy.
Secured vs. Unsecured Creditors
A secured creditor is often a government entity, or a lender with more “weight,” so to speak, than other types of creditors. For example, student loan servicers and mortgage lenders are both considered secured creditors. Unsecured creditors are often servicers of personal loans, payday loans, and credit card companies.
Types of Debt That Usually Aren’t Discharged
Some debt is considered non-dischargeable, which means it’s very difficult to get discharged and discharge is considered only in cases of extreme hardship.
Child Support & Alimony
If you owe back child support or alimony, it cannot be discharged in a bankruptcy. Back support may be put on a structured payment plan, but usually ongoing payments are expected to be made also. If you are unable to meet your child support or alimony obligations due to financial hardship, you would need to file for a modification of support through the family court.
Recent Federal & State Tax Debt
It’s not common for any type of tax debt to be discharged in a bankruptcy, and almost never if the tax debt was accrued recently. Usually, only very old tax debt may be considered.
Debt Incurred 180 Days Prior to Filing for Bankruptcy
If you incurred new debt within 180 days before you filed for bankruptcy, it’s unlikely that those debts will be considered dischargeable, even if they are from unsecured creditors. This helps prevent the abuse of the bankruptcy system.
Student loans aren’t usually dischargeable, even when they reach in the tens of thousands of dollars or more. You may be able to work with the bankruptcy court to restructure your payment plan to something that is more affordable for you.
Contact Us Today
If you’re struggling with more debt than you can afford to pay, there are options available. Depending on what type of debts you have, you may be able to file for a Chapter 7 bankruptcy and have most of them discharged. Contact us today to learn more.