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3 debts you can’t always discharge in a personal bankruptcy

On Behalf of | Nov 2, 2022 | Bankruptcy

People file bankruptcy because they worry about the consequences of collection activity or know that they need help getting control over their debt. Bankruptcy helps those struggling financially by providing an automatic stay.

After you file your initial paperwork with the courts, you won’t have to worry about creditors calling you at home or moving forward with a lawsuit. All collection activity will have to cease until the courts resolve your bankruptcy filing or the other party goes to court to ask for a special exception to the automatic stay.

The discharge of your debts is equally important, as it absolves you of the responsibility to pay off those debts. Bankruptcy discharge can eliminate the obligation to keep paying down your credit card balances or to make payment arrangements with a hospital for the medical care costs your insurance didn’t cover. However, there are some debts that you likely cannot discharge in your bankruptcy.

Your student loans

For many working professionals, their student loans from college or graduate school are among their biggest financial obligations. Someone’s student loans can sometimes add up to more than even a mortgage when someone has a law degree or a medical degree.

Unfortunately, student loans are typically not eligible for discharge in a bankruptcy unless there are unusual circumstances, like someone developing a disabling medical condition after taking on the loans or the school losing its accreditation.

Your spousal support and child support obligations

The financial responsibilities that you have to your ex or your children, including the future amounts that you have to pay and any past-due amounts that you have accrued by missing payments are typically not eligible for discharge in a bankruptcy. Similarly, you may not be able to discharge debts related to a court judgment coming from a personal injury or wrongful death lawsuit.

Your secured debts

Secured debts have collateral property that the lender can reclaim if you fall behind on payments. The most common secured debts include vehicle loans and mortgages.

Although you can discharge the debt owed because of a secured debt in your bankruptcy, you cannot do so without losing collateral property. Many who file bankruptcy will instead try to protect their biggest assets and possibly renegotiate the terms of their car loan or mortgage during their bankruptcy proceedings.

Evaluating the kinds of debt you have to help you pursue the most appropriate and effective solutions for your current financial hardship in a personal bankruptcy filing.