When Is Debt Exempt From Bankruptcy?
While chapter 7 and chapter 13 bankruptcy erases most unsecured debt that is not considered a “priority,” it is still extremely difficult to get rid of these types of debt. The following types of debt are nearly impossible to eliminate:
1. Student Loan Debt
Even though student loan debt is not “priority” debt, in a majority of cases, it cannot be erased through bankruptcy. Education loans, federal student loans, private student loans, and loans directly from a college or university all count as student loan debt. The only exception to this is an “undue hardship,” like a disability or medical condition that prevents one from being able to work.
2. Secured Debt
Secured debt is not often erased through bankruptcy. Car payments, house payments, jewelry costs, and merchandise purchases are included in this category. People will usually have to sell the item, give it back, or just pay the lender. Secured debt requires collateral – and if payments are not made on time, one has to give back the property.
3. Child Support and Alimony
Outstanding balances for child support and alimony will remain even after bankruptcy is complete. These legal obligations cannot be erased because oftentimes the amounts are necessary for the child’s living requirements.
4. Car Accidents from Unruly Conduct
Car crash costs that resulted from a driver under the influence of alcohol or drugs cannot be removed with bankruptcy. The driver is responsible to pay all costs if the injuries to the victim were caused because of unlawful behavior.
Additionally, it is hard to discharge debt when injuries are malicious and intentional, like stabbing another person.
5. Ex-Spousal Fees and Debt
Spousal expenses that were agreed in court cannot be erased with bankruptcy. This includes outstanding debts owed by a spouse that the other person agreed to pay. Spouses that have debts in both party’s’ name will still have to pay those bills, even after bankruptcy.
Money owed from marital property division is separate from this, and can be erased through bankruptcy in certain states.
6. Income Tax Liability
Because of strict requirements, it is hard to eliminate income tax debt. Some tax debt can be erased, but it requires a lengthy test.
While chapter 7 bankruptcy does not often erase dischargeable debt, chapter 13 bankruptcy sometimes lets people spread out dischargeable debt payments over 3 to 5 years, based on one’s income.