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3 kinds of debt people can’t ordinarily discharge during bankruptcy

On Behalf of | Dec 21, 2023 | Personal Bankruptcy

The primary purposes of a personal bankruptcy filing are for someone to stop collection activity and eliminate certain debts. Oftentimes, people decide to file for bankruptcy because a creditor threatens aggressive collection actions. If someone falls behind on car payments, they might be at risk of losing the vehicle that helps them get to work every day.

If someone doesn’t make their credit card payments on time, their lender might take them to court. A debt-related judgment could lead to wage garnishment and further complicate someone’s finances. A successful personal bankruptcy filing can help someone regain control over their finances. It will temporarily stop aggressive collection activity and also help someone rework their budgets by eliminating some of their financial responsibilities. Yet, although people can discharge some of their debts, other obligations will remain intact after a successful bankruptcy.

Student loans

For many modern adults, educational debts are their biggest financial obligations. Unfortunately, student loan debts are also relatively difficult to discharge. There are very strict rules for the discharge of student loan debt, and the vast majority of individuals filing personal bankruptcy do not qualify. The situation typically needs to involve significant hardship and possibly an unaccredited educational institution for someone to eliminate student loan debt during bankruptcy.

Debts related to family court orders

Judges can order divorced individuals to provide financial support for a former spouse in some scenarios. Separated or divorced parents can also be subject to child support orders. Generally speaking, past-due financial obligations imposed by the family courts are not eligible for a discharge during bankruptcy. People will still be responsible for the missed prior payments and future support owed to their former spouses or their children.

Tax debts

There are several kinds of taxes that people may struggle to pay. Income taxes can be a challenge, especially for self-employed individuals who do not maintain enough liquid capital to pay their income tax bills in full. Property taxes for real estate can also amount to thousands of dollars each year. Tax debts are generally not eligible for discharge during bankruptcy.

Thankfully, people can discharge many other financial obligations, including credit card debts and medical debts not secured by a lien. While some debt may remain after a bankruptcy filing, the elimination of certain obligations could make it easier for someone to pay the debts that they cannot discharge.