Bankruptcy in the U.S. is all about giving people who have too much debt to pay it back a financial fresh start, and we’ve introduced the Chapter 7 and Chapter 13 bankruptcy systems in previous columns.
So, does bankruptcy really wipe out all debts, liabilities, etc.? Unlike Chapter 13, which is intended to be a reorganization, Chapter 7 is intended to discharge debts by selling, giving away, or selling all of your property to pay off your debts, except to the extent of exemptions under state or federal law, but unfortunately, not all types of debts are discharged. Loans that are exempt, such as the car you drive or the house you live in, are not forgiven and you must continue to make interest and principal payments. Also, child support and alimony, commonly referred to as alimony, fines owed to the court, most taxes, and student loans are not forgiven.
So, even if you file bankruptcy and are granted, you’ll still have to pay any child support and alimony you haven’t already paid unless you file a specific motion later. (See Family Law Column – Post-Judgment Motion.) Student loans are also not forgiven. In one of the bankruptcy cases we worked on at our law firm, we had a client who was filing for bankruptcy because she couldn’t keep up with her mounting credit card debt and student loans. The bankruptcy team recommended a program to modify this student loan in conjunction with the bankruptcy filing, and with some persuasive documentation and negotiation, we were able to get an unusual reduction. This is very rare, and student loans are generally difficult to forgive or reduce.
And in counseling, there are some debts that are not reported on the bankruptcy petition. If you have borrowed money from family or friends, you may not report these debts because you are afraid that you will not be able to repay them in bankruptcy, or because you have a moral responsibility to them. Unreported debts are also not discharged in bankruptcy. These debts remain debts even if you later file for bankruptcy, and you may be liable for them. Therefore, it is important to thoroughly understand and report your debt history when filing for bankruptcy, and to carefully strategize with an experienced and skilled bankruptcy attorney.
Over the course of your life, you may end up with a lot of debt for a variety of reasons. Bankruptcy can help you get this financial fresh start. However, bankruptcy is never an easy process. It is highly recommended that you speak with an experienced and skilled bankruptcy attorney about the many variables that can arise in bankruptcy. If you have any questions about bankruptcy, please contact mail@songlawfirm.com으로.