For those who face overwhelming amounts of debts and what seem like insurmountable financial obstacles, the prospect of a Chapter 7 bankruptcy can be very attractive. Of course, bankruptcy should not be taken lightly as it has serious long-term consequences. Nevertheless, it can provide the relief you are looking for by wiping out most or all of your debts.
Are there any financial obligations are bankruptcy will not wipe out? Well, most of the bills you’re worried about are probably covered by the bankruptcy statutes. Debts like medical bills, loans, and the infamous but all too common credit card bills are all usually dischargeable. If these are your primary concern, then you’re probably covered.
On the other hand, your debts may fall into the nondischargeable category. Financial obligations like student loans, child support, and fines that are part of a criminal conviction are usually nondischargeable. In other words, you will still have to pay these bills because bankruptcy will not do away with them (at least not in most cases).
Why is that the case? Well, let’s take student loans as an example. Congress structured the bankruptcy statutes this way in order to encourage banks to lend money to students. After all, if you could easily wipe out your debts in bankruptcy, then the banks would be less likely to give the money to college students.
Another obligation which is difficult to get rid of is federal income taxes. If the taxes you owe were incurred during the last three years, you’ll most likely have to pay them back despite bankruptcy. Yes, I know that stinks.
The good news is that bankruptcy covers the most common debts such as credit card bills. It’s obviously not a good thing that so many people are buried in debt, but at least you have an option for a fresh start.