Recently on our legal forum a user asked, “I have a great deal of unsecured debt including $15,000 in credit card bills, $40,000 in student loans, and $15,000 in past due child support payments. I hate the idea of filing for bankruptcy, but I am starting to think that might be my only way to move forward and get a fresh financial start. I am wondering, however, if all of the unsecured debts I have will be discharged?”
What will Chapter 7 bankruptcy do for you?
In 2008 bankruptcy laws were passed which made it more difficult for high income earners to file Chapter 7 and have their debts discharged. Although you did not specifically ask this question, the first thing you need to do is to determine whether you qualify for Chapter 7 bankruptcy.
Now, assuming you do, the next question is whether or not Chapter 7 bankruptcy is right for you. To make this determination you first have to ask yourself whether or not you have the ability to repay your debt. If yes, then repayment is generally the best course of action.
If repayment is not possible, you need to determine whether or not your unsecured debts can be discharged by filing Chapter 7 bankruptcy. Let’s take a closer look at your unsecured debts.
Debts generally discharged by Chapter 7 bankruptcy
You mentioned you have $15,000 in credit card debt. There is a good chance that this unsecured debt could be discharged. Exceptions could exist, however, if the bankruptcy court determined that you used your credit cards for luxury purchases prior to bankruptcy. If the court makes this determination this could create a presumption of fraud which could jeopardize the entire bankruptcy filing.
What about my school loans?
Millions of Americans graduate from college and owe thousands of dollars in student loans. Many make the incorrect assumption that they will not have to repay their debts or that the student loan debt can be easily discharged by filing for Chapter 7 bankruptcy.
Unfortunately, this is not the case. While there are some cases where the court will discharge student loans, it is in no way a given or even easy to accomplish. In fact, current bankruptcy laws exempt educational loans and obligations from eligibility for discharge unless the debtor can prove that repaying the loan would cause undue hardship- which is not clearly defined in bankruptcy law.
Talk to your bankruptcy attorney if you have questions about your student loan debts, but in general, to prove undue hardship and to receive a discharge you will have to prove:
- Repaying the loan will not allow you to maintain a minimum standard of living.
- Your financial situation is unlikely to change in the future.
- You have made a good-faith effort to pay your loans.
What about my child support obligations?
There is no way to escape your child support obligations. In fact, not only can you not discharge your child support debts, child support payments can also be garnished from your wages until the obligation is fully repaid.
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