bankruptcy boundaries: What You Need to Know

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**The following ARE NOT eligible**
  • Student Loans
  • Mortgage Payments
  • Car Payments
  • Secured Loans
  • Income Tax Payments
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The Boundaries of Bankruptcy

Each year, between a million and a million and a half Americans file for bankruptcy. Tougher bankruptcy laws passed in 2005 have hardly made a dent in that number. For many people, it is the last resort in a tough battle to manage debt. But if you think filing for bankruptcy will leave you free and clear of all your debt, you may be in for a surprise. Bankruptcy covers only certain kinds of debt. Here is a look at what is not covered.

There are two main types of personal bankruptcy: chapter 7 and chapter 13. Each has its own rules regarding which types of debt they will eliminate, or discharge. The following are debts that will not be discharged by either type of bankruptcy.

  • Taxes, if they meet certain standards. For instance, you cannot discharge tax debt that is due within three years, that has been assessed within 240 days of filing, taxes for which returns were not filed in the last two years, or fraudulent returns and evaded taxes.
  • Any penalties on taxes not discharged or any debt that you have incurred to pay those taxes.
  • Debt incurred through fraud or false statements.
  • Debt incurred within ninety days of filing (meaning you cannot go out and run up your credit card before you file). Payday advance debt will also not be discharged if incurred in the last seventy days.
  • Child support or alimony payments.
  • Education loans. *
  • Debt incurred through willful or malicious injury or through DUI.
  • Debt from separation or divorce (debt owed to a spouse).
  • Any debt from a previous bankruptcy that was not discharged.
  • Secured loans can be discharged with bankruptcy but the creditor may still repossess your property. (A secured loan is one that has collateral attached.)
  • Debts you forgot to list in your bankruptcy petition is not discharged.

*Note: You may be able to have your student loans discharged with bankruptcy if you can prove that paying them will cause “undue hardship” to you and your dependents. If you cannot prove undue hardship, you may still file under chapter 13, which will consolidate loans and help you arrange a different payment plan.

If you are unsure about which type of bankruptcy you can file – or even if you should file at all – it is best to contact an attorney who specializes in bankruptcy law. The new laws, in fact, require you to receive credit counseling before you can file. This way, you can be sure what will be discharged and what you will still have to pay. It may not be worth it to you or the damage to your credit score to file for bankruptcy.

Filing for bankruptcy is a major decision that can have lasting impact on your life: before you decide to file, look at your debt and see if it can be discharged. It may be worth it to go forward with the proceeding or it may benefit you to try to work out another solution, such as working with a debt settlement or reduction service.