Sins of the Past: 7 Types of Debt That Bankruptcy Won’t Save You From

For borrowers swimming in debt, filing for bankruptcy is a way of staying afloat. Almost immediately, collection actions end, the constant phone calls subside, and medical bills gently fade away.

However, filing for bankruptcy doesn’t solve everything. It has its limits. Some lawsuits, financial obligations, and loans remain even after you file. Here are 7 types of debt that remain even after you file for bankruptcy.

Back Taxes

If you owe the IRS money in back taxes, filing for bankruptcy won’t get you off the hook. There are certain loopholes, for example, if your taxes are from a return more than 3-years old, you may be able to find a way out, but the vast majority of income tax debts cannot be waivered by filing for bankruptcy.

Student Loans

These days, student loans are a spectre that hangs over borrowers for most of their working lives. Not even filing for bankruptcy can blast that ghost.

All education loans, whether it is from a federal loan, a private lender, or a loan directly from the school or college, cannot be eliminated by a bankruptcy filing.

Secured Debts

Any debts secured by collateral, be it your house, expensive jewellery or other personal item, cannot usually be eliminated by filing for bankruptcy. If you cannot make payment, you have to forfeit the item.

Your mortgage is a secured debt. This means that even if you declare bankruptcy if you can’t make the payments, the lender is legally within their rights to take the property and sell it to recover their loan.

Child Support

Child support and alimony obligations remain even after bankruptcy is filed. If you filed under Chapter 13, these debts will be included in your repayment plan until they are paid off in full.

Court-Ordered Restitution

If you have debts relating to a court-ordered restitution payment, you cannot discharge these. These are incurred because the court deemed you caused a personal injury or financial loss to another person. They must be paid in full.

Government Debts

If you owe money to the government in the form of unpaid fines or penalties, these cannot be eliminated by filing for bankruptcy. This includes both the federal government and the state government.

Any Debts you Forgot to List in Your Bankruptcy Papers

If it isn’t in the papers, it won’t be eliminated. It is always a surprise how many people forget to list all their debts in the bankruptcy filing, only to discover at a later date that they have financial obligations to meet that could have been eliminated.

Don’t let this happen to you. Check and double check every debt listing to ensure you won’t be left with anything you shouldn’t be.

Filing for bankruptcy can significantly ease someone’s financial burden and rapidly improve their financial circumstances. But it is not a magic wand ready to make all your debts disappear. After you emerge from bankruptcy, you will still have debts to pay, albeit most likely significantly less than you had before.

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