Bankruptcy Will Usually Not Discharge Secured Debt
Bankruptcy will usually not eliminate secured debt, or debt which is protected by a lien on property. Such debt includes mortgages and car loans. There are some exceptions however, available in Chapter 13 bankruptcy. One such exception applies specifically to the debtors home. The second or subsequent mortgages on the debtors home can be discharged if the value of the home does not exceed the value of the prior mortgages. Another exception applies to most other secured debt, including car loans and mortgages on investment property. In such cases, the portion of the loan that exceeds the value of the property can be discharged or eliminated.
How Do Student Loans Discharge In Bankruptcy
What can you file bankruptcy on when it comes to student loans? Well, discharging student loans in bankruptcy is not impossible, but its rare.
Under current law, youll need to pass the Brunner test by showing that your student debt makes it impossible to maintain a minimum standard of living, and that your finances arent going to change soon. You also have to show youve made a good faith effort to keep up with your student loan bills.
In fact, consumer protection attorney Don Petersen said, Some debts are dischargeable in Chapter 7 as well as Chapter 13, but only if the debtor files an adversary proceeding, which is a sort of lawsuit within a lawsuit, challenging whether a certain liability can be discharged.
In many student loan cases, switching to an income-driven repayment plan or applying for deferment or forbearance is a better option. Filing for bankruptcy can be a long and expensive process with no guarantee of success. Plus, it damages your credit for years.
Stop A Foreclosure Repossession Or Eviction
The automatic stay will stop these actions as long as they’re still pending. Once complete, bankruptcy won’t help.
- Evictions. An eviction that’s still in the litigation process will come to a halt after a bankruptcy filing. But the stay will likely be temporary. Keep in mind that if your landlord already has an eviction judgment against you, bankruptcy won’t help in the majority of states. Learn more about evictions and the automatic stay.
- Foreclosure and repossession. Although the automatic stay will stop a foreclosure or repossession, filing for Chapter 7 won’t help you keep the property. If you can’t bring the account current, you’ll lose the house or car once the stay lifts. By contrast, Chapter 13 has a mechanism that will allow you to catch up on past payments so you can keep the asset. Find out more about bankruptcy’s automatic stay and foreclosure and car repossession and bankruptcy.
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Alimony Maintenance Or Support For A Spouse Or Children
Bankruptcy will not discharge court ordered child or spousal support payments.
These debts, including any missed payments are not dischargeable through bankruptcy.
If you owe money to your spouse, you can be exempt in a discharge if you meet these requirements:
- Debt has to be to a former spouse
- The debt must be in connection with a divorce or property settlement agreement
- A debt has to be in related to child support, maintenance or alimony.
How Did The Myth That Student Loans Are Non
A fairly common myth is that student loans cannot be discharged through bankruptcy . For example, this NPR article discusses the myth and its falsity.
While I have been able to find plenty of information about discharging student loans, I have been unable to figure out the origin or even the intended meaning of the myth that student loans cannot be discharged through bankruptcy. Here are some of the ways that student loans are different:
Given these differences, student loans cant be discharged might be a sloppy way to state the claims that
Student loans are not automatically discharged.
Student loans are exceedingly difficult to discharge, to the point that it might be said to be practically impossible.
The first claim is true, but doesnt jive with how the myth is usually understood . The second claim might be true, but could be misleading. While they are very onerous to discharge, this study referenced in the NPR article found that, while only 0.1% of bankruptcy filers attempt to discharge their student loan debt, those who do attempt to discharge their debt achieve some measure of success roughly 40% of the time .
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Contact Our Experienced New York Firm
The Law Offices of Allen A. Kolber, Esq. effectively represents clients facing Bankruptcy in Rockland County and all of New York State. Our firm understands the stress one can feel when facing a difficult financial future. Our compassionate staff will work to ease your fears and help you make a new start. If you need quality legal support, contact The Law Offices of Allen A. Kolber, Esq.
Wipe Out Credit Card Debt And Most Other Nonpriority Unsecured Debts
Bankruptcy is very good at wiping out unsecured , medical bills, overdue utility payments, personal loans, gym contracts. In fact, it can wipe out most nonpriority unsecured debts other than school loans.
The debt is unsecured if you didn’t promise to give back the purchased property if you didn’t pay the bill. By contrast, if you have a secured credit card, you’ll have to give the purchased item back. Jewelry, electronics, computers, furniture, and large appliances are often secured debts. You can find out by reading the receipt or credit contract.
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Is There Any Way To Discharge Income Tax Debts
You also cannot discharge income tax debts unless you obtain an exemption by explaining to the bankruptcy court why you need relief. Bankruptcy courts seldom allow the discharge of income tax debt. Usually, the better option is making an offer in compromise to the IRS.
If you file for bankruptcy in Oklahoma, you must have the guidance and services of the right Oklahoma City bankruptcy lawyer. Dont try to file for bankruptcy on your own, as any mistakes that you make may be quite costly. Bankruptcy is a last resort, and again, it isnt for everyone.
It entails some significant negative consequences. But if bankruptcy is the best option for dealing with your debts, when the process is complete, you will have a clean financial slate, youll be able to rebuild your credit, and you can move positively and constructively into the future.
Bankruptcy Downside #: Not All Debts May Be Discharged
There are certain debts that almost never get discharged, such as back child support or alimony. Tax debt is also not easily discharged, although it depends on the type of tax debt and your situation.
Theres also a common misconception that student loan debt cant be discharged, even if its private. But our expert disagrees.
Some federal student loans and many more private student loans can be discharged through bankruptcy, Rhode says. But many people dont try because they buy into the myth. In truth, large parts of private student loans are not protected in bankruptcy, because trade or vocational programs were not Title IV qualified.
The reason the myth exists is that the federal government did put in some protections for student lenders during consumer bankruptcy filings. The idea was that the government didnt want people running up student debt that they had no intention to repay. The protections extended, not only to federal loans but also private loans as long as the education provided was Title IV qualified.
But this leaves a big loophole for borrowers that lenders would prefer that people didnt know. Namely, theres no harm in trying to get your student loan debt discharged. Even if the education was Title IV qualified, discharge is still possible in cases of extreme financial hardship. So, its worth it to at least ask for discharge.
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Debts That Are Always Nondischargeable In Chapter 7
Some types of debts are deemed nondischargeable without the need for a hearing if they fall within one of a list of prescribed categories. Unless the debtor can demonstrate extraordinary circumstances, the following debts are automatically nondischargeable:
- unscheduled debts , unless the creditor had actual notice or knowledge of the bankruptcy filing. Also, many jurisdictions allow discharge of otherwise dischargeable debts not listed in the petition due to an innocent mistake when there are no assets to distribute.
- certain taxes
- debts for spousal or child support or alimony
- debts owed to a former spouse or child if they arose out of a divorce or separation
- debts to government agencies for fines and penalties
- student loans
- debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated
- debts owed to certain tax-advantaged retirement plans
- debts for certain condominium or cooperative housing fees
- attorney fees in child custody and support cases, and
- court fines and penalties, including criminal restitution.
While all of these debts are nondischargeable in Chapter 7, some of them can be eliminated in Chapter 13. Find out which debts are dischargeable in Chapter 13 but not Chapter 7.
What Debts Are Discharged In Chapter 7 Bankruptcy
A Chapter 7 bankruptcy will generally discharge your unsecured debts, such as credit card debt, medical bills and unsecured personal loans. The court will discharge these debts at the end of the process, generally about four to six months after you start.
Some types of unsecured debts usually aren’t discharged through a Chapter 7 bankruptcy, including:
- Child support
- Personal injury debts you owe due to an accident while you were intoxicated
- Unsecured debts that you intentionally left off your filing
Your creditor could also object and keep certain debts from getting discharged. For example, a credit card company could object to the debt from recent luxury goods purchases or cash advances, and the court may decide you still need to repay this portion of the credit card’s balance.
Additionally, a Chapter 7 bankruptcy may discharge the debt you owe on secured loans. Secured loans are those backed by collateral, such as your home for a mortgage, or when a creditor has a lien on your property. However, even if the debt is discharged, the creditor may still have the right to foreclose on or repossess your property.
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What About Student Loan Debt
Student loan debts are almost but not entirely impossible to discharge. To discharge student loan debt, you must demonstrate to the bankruptcy court that paying the debt will impose an undue hardship on you and your dependents.
You must file a Complaint to Determine Dischargeability with the bankruptcy court, and then prove to the court that paying your student loan will create an undue hardship. If paying your student loan debt will create a hardship, discuss the matter with your Oklahoma City attorney.
Your Car Loan If You Want To Keep Your Car
If you are paying off your car, the loan is secured by your car. When you file for bankruptcy, under the new bankruptcy rules, you can reaffirm your car loan.
The good news is that if you agree with your car loan creditor to repay all or part of your loan, the creditor wont take your car.
Of course, you must make payments according to the reaffirmed car loan.
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Discharge Exceptions To Discharge And Objections To Discharge
Consumer bankruptcy principally is designed to permit debtor rehabilitation through the discharge of debts. The Bankruptcy Code authorizes a broad discharge, which provides a fresh start to “honest but unfortunate debtors,” to fulfill one of its most fundamental purposes.
Notwithstanding the general availability of the discharge, section 523 of theBankruptcy Code specifically enumerates certain debts that are not discharged. A debtor may discharge all other debts in bankruptcy, but those exceptions remain postbankruptcy charges against the debtor. The exceptions are to be construed narrowly, and a creditor bears the burden to prove each element of an exception to discharge by a preponderance of the evidence.
Debts excepted from the bankruptcy discharge obtain distinctive treatment forpublic policy reasons. Many nondischargeable debts involve “moral turpitude” orintentional wrongdoing. Other debts are excepted from discharge because of the inherent nature of the obligation, without regard to any culpability of the debtor. Regardless of the debtor’s good faith, for example, support obligations and many taxclaims remain nondischargeable. Society’s interest in excepting those debts fromdischarge outweighs the debtor’s need for a fresh economic start.
1.4.1
However, with increasing frequency, section 523 is used to challengethe dischargeability of debt arising from the routine use of credit cards even in theabsence of actual fraud.
1.4.3 Criminal Restitution Orders
Notes:
What Debts Cannot Be Discharged In Bankruptcy
If you are someone who currently has amassed a certain amount of debt that you simply cannot pay off and are looking for a fresh start, bankruptcy is most likely your most viable option. The goal of bankruptcy, whether you are filing for Chapter 13 or otherwise, is to discharge your debt. Simply put, there are various types of debt that are dischargeable, or that can be eliminated, and this is very much welcome news to many individuals. However, that being said, you should note that there are various debts in bankruptcy that cannot be discharged no matter what, meaning you will still find a way to pay them off.
Of course, our experienced Rockland County bankruptcy attorney can guide you through the bankruptcy process and help you create a plan regarding how to pay off your non-dischargeable debts, however, you should first have a firm understanding of what those debts truly are. Please continue reading and reach out to our knowledgeable firm to learn more about the bankruptcy process and which debts are, and are not, dischargeable. Here are some of the questions you may have:
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Stop Collection Calls After Your Bankruptcy Case
If a creditor calls you after you file bankruptcy, providing your case number and the filing date will likely stop the calls cold. Finding your filing date is easy to do. Pull out any bankruptcy document from the court. The filing date will appear at the top of the page next to your case number.
A creditor can quickly verify your bankruptcy using the information, and if the calls don’t stop, the creditor will be subject to sanctions. Find out more in What happens if a creditor tries to collect a debt during my bankruptcy?
What About Secured Debt
Debts backed up by property, such as home mortgages or automobile loans, are secured debts. The debt will be discharged but the lender is entitled to recover the property used as security. If you want to keep the property, you do have alternatives. You can negotiate with the lender while in bankruptcy to alter the terms of the original loan. The lender might be willing to extend your loan so that the payments are more affordable or might offer a reduced principal balance on the loan. You also have the option of keeping the property if you pay its current value to your lender. Our experienced attorneys can review your individual situation and go over all of the options with you.
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Bad Debts Not Cleared With Bankruptcy
The main reason you are considering filing bankruptcy is to clear away your bad debts, the debts that you cannot pay. First, its important to keep in mind that there are different types of bankruptcy the two most common types are Chapter 13 and Chapter 7.
Talking with a bankruptcy attorney will help you decide which option is the best for you and your circumstances however, in either case, there are some instances where bankruptcy will not clear your debt, regardless of which type of bankruptcy you file. The most common debts that cannot be cleared with filing bankruptcy include:
Student Loans
Unfortunately, in most situations, you will not be able to clear your student loans through bankruptcy, because private and federal loans are exempt from bankruptcy. However, in some instances, you may be able to get your student loans discharged through bankruptcy. In order to clear a student loan, you will need to prove that you have suffered an undue hardship, such as a disability that prevents you from earning the money needed to repay the loan.
In this situation, you will also have to prove that you have done everything possible to pay down the student loans and that in doing so, it prevented you from maintaining the minimal standard of living. It is important to keep in mind that it is difficult to prove a hardship in bankruptcy court.
Secured Debt
Taxes and Government Debts
Child Support and Spousal Support
Debt from New Credit Cards
Forgotten Dischargeable Debts
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