In last week's column, I discussed some common debts that could be eliminated in a bankruptcy filing. To keep it even, I'd like to talk this week about some debts that can't be discharged in bankruptcy. You are able to file bankruptcy without an attorney; however, if your desire to file is only to eliminate one of the debt types below, you could end up filing an unnecessary bankruptcy.
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Here are the most common debts that cannot be eliminated in bankruptcy.
Debts that can't be eliminated
- Student loans.
- Secured debts.
- Child support and alimony.
- Ex-spouse legal fees and credit card debt.
- Car accident due to intoxication or willful and malicious intent.
- Income tax liability.
Student loans: Loans taken out for schooling may not be eliminated in the vast majority of cases. All types of education loans qualify as student loans and are exempt from elimination in bankruptcy: federal student loans, private lender student loans, loans directly from the school and tuition assistance loans directly from a school.
Exception: If the borrower can prove he or she will never be able to work again because of a total and permanent disability, he or she may be able to include the student loan in the filing. However, the standard to eliminate student loans is very high and generally not possible.
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Secured debt: If you buy a vehicle, valuable jewelry or merchandise and then file bankruptcy, you will either have to surrender the item or continue to pay the lender. The lender has a security interest in the item you purchased. This means you made an agreement with the lender to pay for the item in exchange for the current use of the item. Failure to pay results in a forfeiture of your right to continue using the item.
Exception: You are allowed to surrender the vehicle, jewelry or merchandise back to the lender and wipe out your obligation to pay. You are not obligated to keep an item just because the lender has a security interest. You just cannot keep it and not pay for it.
Child support and alimony: Fortunately, you may not eliminate a legal obligation to pay child support or alimony. Any outstanding balance owed at the time of filing will still remain after the case is over.
Ex-spouse legal fees and credit card debt: In many divorce decrees, one spouse agrees to pay for legal fees or some outstanding debts owed by the other spouse. These debts will survive your bankruptcy. For example, if you agree to pay the credit card balances in your name and the name of your ex-spouse, you could not then turn around and file bankruptcy to wipe out those debts or the agreement to pay. Your ex-spouse could still force you to pay those bills.
Restitution: Court-ordered restitution is not dischargeable in bankruptcy. Restitution is a court-ordered sum of money you must pay for causing financial loss or personal injury to another.
Vehicle accident resulting from intoxication or willful and malicious conduct: Any injury you cause to another resulting from driving under the influence cannot be wiped out in bankruptcy.
Income tax liability: You can wipe out some income tax liability, but there is a very specific and extensive test required to do so. I have written on this subject in a previous article, "Can bankruptcy eliminate tax bills? Maybe."