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Bankruptcy Won’t Erase These Kinds of Debt

Bankruptcy Won’t Erase These Kinds of Debt

By on Aug 25, 2015 in Tax Problems | 0 comments

Bankruptcy Won’t Erase These Kinds of DebtMany people mistakenly think that bankruptcy erases all of your debts.  In fact, there are countless TV commercials that make you think that bankruptcy is a relatively easy solution to all of your financial problems.  Do not be fooled by these claims. 


While bankruptcy can be a useful and necessary tool for easing extreme financial distress, it is important to know the facts about what types of debt it eliminates before you go down this road.  Here are some common types of debt that are not eliminated when you file bankruptcy:


  • Secured Debt:  If you make a large purchase (think car, fine jewelry or other valuable items) before filing bankruptcy, you will have to surrender the item or continue to pay the lender for the purchase.  The lender has a security interest on your item so you must either surrender it or continue to pay for it.
  • Student Loans: In most bankruptcy cases, you are not able to wipe away student loans in your settlement. This includes federal student loans, private student loans, and loans that come directly from the school.  The only general exception to this is if a person can prove that they have permanent disability and will never be able to work again.  This is a high threshold, so you should assume that in the vast majority of cases, you will still have all of your student loan debt after you file bankruptcy.
  • Income Tax Liability: Bankruptcy is not generally a good strategy for solving the problem of tax debt.  In fact, in most cases, your tax debt will not be forgiven if you file.  Instead, you should consider other options for satisfying your tax debt.  Installment agreements and offers in compromise are two more viable options for putting your tax debt behind you.
  • Child Support and Alimony: The courts consider child support and alimony a responsibility, not a debt, so you will still be required to pay if you elect to file bankruptcy.
  • Ex-spouse Legal Fees and Credit Card Debt: If you agree in divorce proceedings to pay your ex-spouse’s legal fees and/or credit card debt, you cannot turn around and file bankruptcy to get rid of them.  You will still be expected to pay.
  • Restitution: If the courts have ordered you to pay another individual for causing financial loss or personal injury, this will not be reversed if you file bankruptcy.
  • Expenses Related to a Car Accident Where Alcohol is Involved: Another hard and fast rule: bankruptcy does not eliminate any payments you are required to make because of an car accident involving alcohol.


Bankruptcy is a big step and a decision that should not be made lightly.  Having all of the facts and considering partnering with trusted professionals are two strategies for making an informed decision that is best for your unique situation.


Bankruptcy lawyers and tax firms have resources that can help you.  They can also review your situation and help determine what path toward financial security will be best for you.  Success Tax Relief has helped thousands with tax debt and other financial trouble find a path toward financial freedom.  Give our team a call today at 1-877-825-1179 or contact us here to learn more during a free consultation.


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