If you are experiencing financial difficulties brought on by situations beyond your control -- including divorce, prolonged illness, or unemployment -- you may be considering the lifeline provided by Chapter 7 bankruptcy. However, you may not know much about the process itself.
In Chapter 7 bankruptcy, a bankruptcy trustee will collect and liquidate some of your assets. The income earned through this sale of assets will then be applied to your unsecured debts -- meaning those that use no assets as collateral -- and any remaining balance will be discharged.
It is important to know however that not all unsecured debts can be discharged. For example, student loans, alimony/child support, secured debts and other types of debts typically cannot be eliminated via Chapter 7 bankruptcy.
- Alimony/Child Support - You cannot discharge either alimony or child support via Chapter 7 bankruptcy. Consequently, any arrears you have at the time of your initial filing will remain your responsibility.
- Student loans - In order to discharge your student loan debt via Chapter 7, you will need to establish "undue hardship." In simple terms, you must be able to show the bankruptcy court that either you or your dependent has some sort of serious physical/mental affliction that prevents you from maintaining any kind of gainful employment.
- Divorce agreements - If you agreed to pay off the credit card debt of your former spouse as part of a divorce decree, filing for Chapter 7 will not eliminate these debts or the divorce decree. You may still be held responsible for making these payments
- Tax liability, restitution, judgments - Even though these may be rather sizeable debts, you typically cannot wipe out tax liability, restitution or judgments via Chapter 7 bankruptcy.
Stay tuned for further developments on this story from our Phoenix bankruptcy blog ...
If you would like to learn more about how to eliminate debt and secure a fresh start via Chapter 7 bankruptcy or Chapter 13 bankruptcy, take the time to speak with an experienced legal or financial professional.
The following post is for informational purposes only and is not to be construed as legal advice.
Bankrate.com, "Debts that can't be wiped out in bankruptcy" Jan. 31, 2012
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