Filing Bankruptcy? 3 Debts That Chapter 7 Will Not Discharge
Most people feel incredibly embarrassed because they have to file bankruptcy, but it is important to remember you are not alone. Even though an estimated 490,365 Chapter 7 bankruptcies were filed in 2016 alone, most people are not entirely familiar with how this bankruptcy works. Known as a liquidation bankruptcy, Chapter 7 discharges your debts, helping you make a fresh start. Unfortunately, certain debts cannot be discharged even though you do not have the actual income to pay them. With this guide and your attorney's help, you will learn a few surprising debts that Chapter 7 bankruptcy will not discharge.
If you are experiencing financial stress and have a house, your first thought may be to sell your home as soon as possible so you can pay your debt and basic living expenses. This is helpful in certain situations, but selling your home is not always necessary.
Filing bankruptcy can eliminate your other debts while letting you keep your home. However, your mortgage will not be a debt that is discharged after filing Chapter 7 bankruptcy.
If you are behind on your mortgage payments, the lender may ask the bankruptcy courts for permission to proceed with the foreclosure on the house, since Chapter 7 will not discharge the mortgage debt.
If possible, file an exemption on your mortgage, allowing you to keep your home, which is possible in certain situations. Ideally, discharging the other debts should allow you a method of catching up on your mortgage payments, reducing the risk of foreclosure.
If you are divorced or separated, you may have ongoing child support or alimony payments that are affecting your budget. Paying these can be difficult, especially if you are already struggling to pay other expenses, such as your mortgage/rent, utilities, and credit card debts. While Chapter 7 will discharge most of your debts, child support and alimony payments will not be included in your bankruptcy.
Again, discharging your other debts should free up the income needed to pay your child support and alimony payments. Remember these payments are important for a few reasons. Not only are they beneficial to your children and ex-spouse, but making the payments on time will ensure you do not have your wages garnished. Also, remember that not paying your child support payments can actually lead to jail time.
Another debt that Chapter 7 bankruptcy will not discharge is your student loans. There are ways to reduce your student loans, though, but you will need to work with your attorney to figure out if you can prove severe financial hardship.
Each court is different, so the possibility of proving hardship will depend on which test the courts administer.
For example, the Brunner test is commonly used to determine hardship. If you have very low income and excess debt and the courts feel this poverty level will continue for some time, you may pass the Brunner test which proves the student loans should be discharged. Also, the courts will want to see you have made good attempts at paying the loans in the past.
If your student loans were used for education from a for-profit trade school, you may qualify for a discharge of your loans, as well.
If the courts do not approve the discharge of your student loans, you can still file bankruptcy. Once the bankruptcy case is over, you will still be responsible for these debts.
Filing bankruptcy does not mean you will be free of all your expenses and debts. Knowing what to expect in regards to these three types of debts is smart before filing Chapter 7. Talk to a bankruptcy lawyer to learn more about your options.