Chapter 7 bankruptcy, or “liquidation” bankruptcy, is one of the most common forms of bankruptcy in the United States. It provides a fresh financial beginning by allowing individuals to discharge most unsecured obligations. Chapter 7 filings may not be able to discharge all debts. Knowing which debts can be discharged after bankruptcy is vital for anyone considering this route, especially those in Scottsdale who may be struggling with overwhelming financial obligations. This post will discuss which debts cannot be discharged through Chapter 7 bankruptcy.
- Chapter 7 Insolvency Overview
Chapter 7 bankruptcy requires the liquidation by a creditor of non-exempt properties. An immediate automatic stay is granted on filing, halting all collection attempts against the delinquent. Unappointed court trustees then evaluate a debtor’s assets and liquidate any non-exempt goods to repay creditors. The remaining unsecured obligations, like medical expenses and credit card debts, are typically discharged.
The process of debt discharge can provide significant relief. However, certain types cannot be discharged. This may have a lasting impact on your recovery.
- Non-Dischargeable Debts Under Chapter 7
While Chapter 7 bankruptcy may be the optimal choice for you, knowing which debts are not eligible for discharge is crucial. Here are the categories of non-dischargeable debts.
- Certain Taxes
The majority of tax debts will not be discharged by Chapter 7 bankruptcy. Specifically:
- Income Taxes: Income tax debts cannot be discharged unless they meet certain criteria. These include being three years old or older, having been paid on time, and not having had an assessment by the IRS for the past 240 days.
- Trust Funds: Trust fund taxes include payroll tax that an employer withholds from employee wages. Employers are responsible for these taxes, which are not dischargeable in bankruptcy.
The tax implications of bankruptcy are important. A bankruptcy lawyer in Scottsdale can provide more clarity.
- Child Support, Alimony And Maintenance
Family support obligations cannot be discharged through Chapter 7 bankruptcy. This includes child support and alimony. In order to provide financial support for dependents or former spouses, the law gives these debts priority. These obligations are typically treated as priority liabilities by the courts. This means they have to be paid fully.
A bankruptcy attorney can guide you through other options if you are experiencing financial problems. This will help you meet your obligations for family support while managing your finances.
- Student Loans
Student loans are notoriously tough to discharge during bankruptcy. Under current laws, federal student loans and most private student debts cannot be discharged in Chapter 7 bankruptcy. Debtors cannot discharge student loans without proving an “undue” hardship. This tough legal standard requires them to show that repayment would cause extreme financial distress.
If your student loan debt is overwhelming, you may want to consider bankruptcy as a last resort. However, you should also explore other options, such as income-driven loan repayment plans or forgiveness programs.
- Debts Caused By Fraud Or Misrepresentation
Debts acquired through fraudulent means, such as fraud or misrepresentation, will not be discharged by the bankruptcy court. A creditor who can prove the debtor’s fraudulent behavior will have the bankruptcy court deny any discharge.
In the case of a falsified credit application or a loan obtained through fraud, those debts remain your responsibility even after bankruptcy. Consulting a bankruptcy law firm can help you determine the consequences of your financial decision and how this may impact your bankruptcy filing.
- Personal Injury Debits
Also, you have incurred personal injury debts due to your negligence are non-dischargeable. You can’t eliminate debts or judgments in bankruptcy if you were found responsible for causing harm to a third party. This is especially true for those who have been involved in accidents or lawsuits that were determined to be their fault.
Conclusion
Chapter 7 bankruptcy could be a powerful option for individuals looking to reduce their debt burden. For effective financial planning, you must understand what debts are non-dischargeable. Knowing the debts that remain after bankruptcy will guide you in your recovery.
You should not hesitate to consult a Scottsdale lawyer if Chapter 7 is something you are considering. You can navigate the complexity of the process with their help and be prepared for the journey. With the right steps, you can have a fresh financial beginning while managing your debts.
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