Certain debts remain to be paid after bankruptcy case concludes
Bankruptcy is not the solution for eliminating all debts. The U.S. Bankruptcy Court is not allowed to discharge some types of debt, and those that aren't discharged will need to be dealt with by the debtors once their case has concluded.
When debtors are able to save their homes, cars and personal belongings through exemptions provided in Chapter 7 bankruptcy, they will still be expected to keep their mortgage paid to avoid foreclosure and keep other payments current.
In Chapter 13, the court-ordered payments last several years, giving people time to catch up on arrears through the plan. Once it is completed, they must keep their payments current in order to avoid further financial difficulties.
In short, bankruptcy can eliminate many debts, paving the way for people to address other bills that the court cannot discharge. Those who are considering a bankruptcy petition should know ahead of time what they will responsible for once their case concludes.
The discharge issued by the bankruptcy court at the end of a case largely covers unsecured debt. That includes credit card balances, medical bills and other types of consumer credit not linked to tangible assets.
The biggest areas of debt that the court will not discharge are arrears in alimony or child support, all government loans and both private and government-issued student loans. Court fines and any debts that arise from personal injury caused by accidents in which the debtor has driven while under the influence also cannot be discharged.
Income back taxes also cannot be discharged unless the debtor meets several specific conditions outlined in the bankruptcy code. They involve Internal Revenue Service tax liens, when the tax returns were filed prior to bankruptcy and when taxes were assessed.
Any bills owed by the debtor that occurred as a result of fraud - such as lying on a credit application - will also not be discharged by the court, states the National Association of Chapter 13 Trustees.
Those who file bankruptcy must also be careful of purchases and cash advances made prior to filing a petition, according to section 523 of the bankruptcy laws often referred to as the "70/90 rule." Within 90 days before the filing, an individual may not charge more than $550 to a credit card for items considered non-essential luxury goods or services. Charges made for essential items such as emergency car repairs are not usually considered a violation.
Additionally, within 70 days prior to the bankruptcy filing, no more than $825 may be taken for any purpose in cash advances, such as the use of credit card convenience checks.
If such expenses occur, it may be reason enough for the bankruptcy court to presume fraud on the part of the debtor and examine the individual's finances for as much as five years before the petition was filed. If the charges are deemed fraudulent, they will be omitted from the bankruptcy and the creditors will have to be paid those amounts.
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