Filing Bankruptcy: It Can Help, But There Are Consequences
First, the definition: bankruptcy is a legal declaration of one’s inability to pay off large amounts of debt. When an individual declares bankruptcy, the bankruptcy court will clear the individual of responsibility for those debts which are legally dischargeable. Under United States bankruptcy law, two forms of bankruptcy available to individual debtors are chapter 7 bankruptcy and chapter 13 bankruptcy (chapter 11 filings are possible for an individual, but uncommon).
Chapter 7 bankruptcy is the most common kind of bankruptcy in United States. The best benefit of Chapter 7 bankruptcy and site all dischargeable deaths are immediately wiped out — you don’t have to wait or pay off any remaining debts (at least the ones that are legally dischargable).
In Chapter 13 bankruptcy, the debtor will have a repayment plan so that they can pay off all their debts over a period of time. Some debts may be erased immediately, but this doesn’t always happen. One major advantage of Chapter 13 bankruptcy over Chapter 7 bankruptcy is that the debtor may be allowed to hold on to some assets which would have been otherwise liquidated under Chapter 7.
Unfortunately, there are some debts which are only dischargeable under chapter 13 bankruptcy, and certain debts which are not dischargeable at all. Other debts are dischargeable only under chapter 13 bankruptcy, including: - Marital debts incurred in a divorce or settlement agreement - Debts incurred to pay a non-dischargeable tax debt - Court fees - Condominium, cooperative, and homeowner’s association fees - Debts from retirement plan loans - Debts that could not be discharged in a previous bankruptcy
Generally, debts which are not dischargeable by any means include: - Those which were incurred through fraudulent actions - Student loans (unless the debtor can prove that repaying the loan would cause “undue hardship”) - Domestic support obligations, such as child support payments, alimony, etc. - Criminal penalties - Intoxicated driving debts - Debts arising from willful or malicious acts
Income tax debts can be discharged, but only under certain circumstances. The restrictions include, but are not limited to that you have to have filed a tax return for the year you owed the taxes, and the tax debt must be from a tax return filed at least two years before your bankruptcy filing.
For a bankruptcy filing to work out the debtor must honestly list all debts and obligations. Debts which cannot be assessed for reasons which are under the debtor’s control (e.g. the debt is not listed or the address given is incorrect) may not be cleared.
Filing bankruptcy doesn’t mean that your financial life is over. you may still have liens on your house, but at least now no one will be a double to garnish your wages or access your bank account. Do expect to have difficulty getting loans. Cash is going to be your best friend for the next few years.
While filing for bankruptcy can relieve you of the burden of debt, a prospective filer must do their due diligence to know which debts cannot be discharged, and to make sure that all dischargeable debts are, in fact, discharged. Sometimes a person has no choice but to file for bankruptcy because of medical bills or other forces beyond their control; just remember that you control what you do with your life after bankruptcy.
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