Sometimes things happen in life that compromise a person’s financial stability and overwhelm a person with debt that he or she may not have the money to pay off. Bankruptcy is the option many people choose in this situation so they can get creditors off their backs and start over financially without the burden of debt following them around. While bankruptcy does afford consumers the opportunity to clear most types of debt from their balance sheets, there are still other types of financial obligations that can never be discharged through the bankruptcy process.
Consumers need to be aware of these limitations because there are companies out there that claim they can erase these debts when it is not realistically possible to do so. One student loan assistance company out of Florida is facing its own bankruptcy filing following a number of lawsuits related to misleading students with promises of reducing or eliminating student loan debt and contacting consumers via robo-dialing without consent. In an effort to educate consumers about certain restrictions in the bankruptcy code related to specific kinds of debt, an overview of debt obligations bankruptcy cannot generally eliminate will follow below.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy proceeding is typically the kind of bankruptcy most people picture when thinking about this process. Chapter 7 bankruptcies are liquidation cases where a court-appointed trustee sells all of the debtor’s nonexempt property and divides the proceeds among the creditors. The debt remaining after liquidation is completed is discharged, if possible, which means the debtor is released from personal liability for any remaining balances owed. While the bankruptcy petition is pending, the bankruptcy court will issue an automatic stay that prevents creditors from filing lawsuits, garnishing wages or demanding payment.
First, though, it is necessary to determine if the debtor is eligible for Chapter 7 bankruptcy protection. In order to be eligible to file for a Chapter 7 bankruptcy, the debtor’s monthly income must be less than the State median income. Debtors who make above this amount must file for a Chapter 13 bankruptcy, which requires the debtor to enter into a repayment plan with creditors. In addition, before a petition can be filed but after determining eligibility for Chapter 7, the debtor must attend credit counseling from an approved agency within the 180 days before the petition is submitted to the court.
Non-Dischargeable Debt
It is worth noting that discharge is not a right, and a court may deny the discharge of debt if the debtor fails to follow to court rules and procedures, such as not providing requested documents or hiding assets. There are number of debts that are barred from discharge under federal bankruptcy law, minus narrow exceptions. Some of the debts that fall into this category include:
- Certain taxes, especially tax liens;
- Back spousal or child support;
- Fines and penalties owed to government agencies, like traffic tickets or vehicle impound fees;
- Student loans, with rare exceptions;
- Condo or cooperative housing fees, like HOA fees; and
- Court fines and penalties.
Talk to a Bankruptcy Lawyer
While anyone can file for bankruptcy on his or her own, this area of the law is technical and includes of a lot hard deadlines that, if missed, will result in the dismissal of the bankruptcy petition. Experienced bankruptcy attorneys, like Christopher L. Arrington, can guide you through the bankruptcy process and help you to keep as much of your property as permitted by law. Christopher Arrington represents clients in the Indianapolis area and offers free appointments to address your questions. Contact him today to schedule a meeting.