What Debt Cannot Be Removed by Declaring Bankruptcy?
What Debt Cannot Be Removed by Declaring Bankruptcy?
Posted on October 5, 2022 in Finance
If you own a home, are in the military, or have children under eighteen who depend on your income, declaring bankruptcy may not be an option for you. In these cases, you must review your debt relief options and determine which may be best. Numerous different types of debt relief are available, and choosing one can help reduce the financial consequences of not being able to pay bills and other debts. Non-dischargeable debts will not be eligible for bankruptcy protection. Here are debts that can’t be removed through bankruptcy.
Alimony is a type of court-ordered spousal support. It is usually ordered to be paid by one ex-spouse to another during or after a divorce. Alimony is not dischargeable under Chapter 13. No matter how long the marriage lasted or what arguments led to divorce, the spouse receiving the payment must continue to pay it into retirement accounts until death. Alimony may be either periodic or lump sum, but it must be used for the benefit of the same person who was being supported before filing bankruptcy. Alimony payments are enforceable through wage garnishment, property liens, or seizure of assets.
2. Student Loans
The government or private institutions issue student loans to help pay tuition, books, and living costs while attending school. The federal government will not discharge student loans under Chapter 7 liquidation or Chapter 13 reorganization. However, if you can prove that payment of your student loan will impose an undue hardship on your dependents, you may be eligible for a discharge in a Chapter 7 bankruptcy. The determination of whether the debt will be eligible for a release is made after all other obligations have been paid under a repayment plan to keep property from being liquidated and sold to repay creditors.
3. Domestic Support Obligations
If you have made a court-ordered payment to another person for basic living expenses, such as food, housing, and medical care, it cannot be discharged in bankruptcy. If you do not make the payments regularly, the other party may petition the court to have arrears added to your debt. Child support and alimony payments are considered domestic support obligations by bankruptcy laws. They cannot be discharged even if you use these payments as part of a repayment plan in bankruptcy court.
4. Child Support
Child support obligations are enforced through wage garnishment, liens on property, or seizure of income tax refunds. Unpaid child support may be pursued through the state you lived in when the order was issued. If you do not live there anymore, the state will seek any funds crossing its borders. Child support orders are issued by a court and can’t be discharged in bankruptcy. Child Support Enforcement Agencies and Family Courts have sole jurisdiction to modify a child support order. However, this seems unlikely because of the high cost of raising children until they turn eighteen years old and graduate from high school.
5. Federal Debts
Most federal debts cannot be discharged in a Chapter 7 bankruptcy. Some exceptions are student loans, unpaid taxes, fines, and other debts owed to the federal government that qualifies as priority obligations under federal law. You may be able to discharge any portion of a defaulted student loan balance if you can prove there is an undue hardship for you or your dependents. If taxes are your only non-priority unsecured debt, you can discharge up to $2,386 in tax liability through bankruptcy. Other taxes will not be eligible for this limitation on liability.
6. State Tax Liabilities
Any tax liability owed to the state of your residence is not dischargeable to any other debts in a Chapter 7 bankruptcy. If you owe state taxes, you can use a Chapter 13 bankruptcy to pay off non-priority unsecured debts over time. In most cases, it is better to negotiate a repayment plan with the taxing authority than file for bankruptcy because state taxes are frequently non-dischargeable in Chapter 7 liquidation. Non-dischargeable taxes are uncommon if they were assessed within three years of filing for bankruptcy protection.
7. Income Tax Debt
If your income tax debt is past the IRS statute of limitations, it can be discharged through Chapter 7 bankruptcy. If you have a balance remaining, you can use a repayment plan to pay back a portion each month to the petitioning creditor. The repayment period must extend beyond the time for which the creditors would have been able to collect if you had filed for bankruptcy. You may also be able to discharge unpaid taxes if you cannot pay them because of undue hardship on your dependents or yourself.
8. Criminal Fines and Penalties
Criminal Fines can’t be discharged in bankruptcy due to a conviction. These fines differ from restitution, which could be ordered by a court when you are convicted of a crime. Reimbursement is paid to the party or parties harmed by your actions or their survivors. Bankruptcy might allow you to discharge restitution if it was imposed on Chapter 7, 11, or 12 debtors during the last 240 days of your Chapter 13 bankruptcy. It does not affect the amount available for repayment of your unsecured debts.
The types of debts that can’t be discharged in bankruptcy are situations where a debt collector could not go after the debtor or when a court-ordered payment to a party. Both cases involve legal obligations that supersede customary bankruptcy laws.