Bankruptcy Won’t Erase These Kinds of Debt
A common misconception about bankruptcy is that it erases all of an individual or family’s debt. While bankruptcy can help eliminate debts such as credit card debt and unsecured debt, and can eliminate the persistent harassment of collection agencies, you should know that bankruptcy DOES NOT erase some other very common debt. So if you are seeking a solution for paying down this debt, you should look at other options.
1. Student Loans
In most cases, student loan debt is not forgiven or erased if you declare Chapter 7 or 13 bankruptcy. It does not matter whether the student loan is from the government, a private lender or the school you are attending. You will still be expected to pay your student loans back even if you file bankruptcy.
2. Tax Debt
More often than not, if you are trying to use bankruptcy to help get you out of tax debt, this strategy will not get you very far. The IRS does offer several options for those who are unable to pay their tax debt all at once – you are much more likely to be able to get the IRS to approve an installment agreement (paying the tax debt over time) or even be granted an offer in compromise (reducing the amount of tax debt owed due to financial hardship).
3. Child Support and Alimony
There is not a lot to explain here. You are required to pay child support and/or alimony regardless of your bankruptcy status.
4. Secured Debt
Secured debt is defined as an agreement to pay for an item (car, piece of jewelry, other merchandise, etc.) in exchange for use of that item. Bankruptcy does not wipe these debts out either. You are still responsible for paying this debt, even after you file bankruptcy.
5. Vehicle Accident Involving Alcohol
As you might expect, debts for personal injury or death caused by your intoxicated driving are also not forgiven under bankruptcy law.
So…Is Bankruptcy an Option for You?
Of course, there may be exceptions to each of the situations listed above and there may also be other types of debt that bankruptcy also does not erase or forgive, so it is critically important to know the facts and how to apply them to your unique situation.
Bankruptcy can be an effective strategy for getting you or your family out of debt when there are no other viable options for you. There are many success stories of individuals who have come back after bankruptcy to become financially solvent. But, it is important to keep in mind that this strategy does not cover all types of debt. You need all of the facts before you decide if bankruptcy is truly the best next move for your financial future.
Bankruptcy can be complicated and you may have lots of questions about whether it is a good next step for you. You can seek help from multiple sources for clarity – bankruptcy attorneys and tax firms are two good sources of support for reviewing your situation and providing advice.