Filing for bankruptcy can offer a fresh start for those drowning in debt, but it doesn’t wipe the slate completely clean. Understanding what bankruptcy does not cover is crucial for managing expectations and planning your financial future.
Non-dischargeable debts
Some debts are not dischargeable in bankruptcy. These non-dischargeable debts include child support and alimony. These obligations remain intact regardless of your bankruptcy filing, as they are considered essential responsibilities.
Student loans
Student loans are another significant category often excluded from bankruptcy discharge. In most cases, you will still be responsible for repaying your student loans, although there are rare exceptions if you can prove undue hardship.
Recent taxes
If you owe recent federal, state, or local taxes, these are typically not dischargeable in bankruptcy. However, some older tax debts might be eligible for discharge with certain conditions, such as the age of the tax debt and whether a tax return was filed.
Debts from fraud or illegal activity
Debts incurred through fraudulent activity or illegal behavior, such as fines or penalties, are not dischargeable. This includes debts from embezzlement, theft, or other actions that involve dishonesty.
Luxury goods and cash advances
If you have recently purchased luxury goods or taken out significant cash advances before filing for bankruptcy, these debts might not be dischargeable. Creditors may argue that you incurred these debts with no intention of repaying them.
Secured debts
Bankruptcy might not eliminate secured debts like mortgages, and car loans if you wish to keep the property. While you can discharge the debt, the lender still has the right to repossess or foreclose on the property if not paid.
With a clear understanding of these exclusions, you can better prepare for your financial future and focus on rebuilding your life.