Certain Debt Cannot Be Eliminated In Bankruptcy

Bankruptcy Word GraphicOnce debt has reached an insurmountable level, it may be time to consider your options for bankruptcy. Whether for an individual or a business entity, filing for bankruptcy is a major decision that requires a tremendous amount of analysis and forethought. And while bankruptcy may be the optimal route to solving your current major financial difficulties, it may not be the simple solution you have in mind.

Which Debt Does Bankruptcy Erase?

These are the most common types of debt that cannot be eliminated by bankruptcy:

Student Loans. In the majority of bankruptcy cases, student loans issued for college education may not be eliminated. There are different types of education loans under the “student loan” umbrella, federal student loans, loans coming directly from a school, private student loans, and all these types of debts cannot be written off by bankruptcy. An exception can be made, but under extremely limited circumstances. If it can be shown that paying student loans would cause undue hardship, that there is no likelihood these loans would be paid in the future because of permanent disability, then there is a possibility to eliminate student loans, however, it is a difficult claim for most.

Secured Debt. Bankruptcy cannot protect you against the liens of a secured creditor for items you purchased such as cars, and high ticket valuable jewelry. You will be expected to continue paying the lender, or to give up the items to the lender.

Ex-spouse Legal Fees. Any debt that was incurred by a spouse as the result of a divorce can’t be eliminated in bankruptcy. For instance, if in a divorce decree one spouse has been ordered to take on outstanding debt or pay the legal fees owed by the other spouse, bankruptcy will not protect that spouse from those obligations.

Child Support And Alimony. The legal responsibility to pay alimony and child support are not eliminated by bankruptcy filings. One will continue to owe such debts in full as they are immune from bankruptcy.

Tax Liability. Attempting to eliminate tax debt in bankruptcy is difficult as there are many specific requirements that must be met. However, there are alternative ways to approach tax debt that can be considered such as installment payment agreements.

Restitution And Alcohol-Related Car Accident. Court-ordered restitution owed to another individual for personal injury or financial loss is not protected in bankruptcy. And injuries you caused to another individual due to driving under the influence can’t be erased by bankruptcy.

Want To Learn More About The Effects Of Bankruptcy?

For more information about how bankruptcy and how it could affect your finances, contact E&Y Insurance Agency at (248) 362-1313.


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