Bankruptcy basics: Here are the debts you cannot clear with bankruptcy

On Behalf of | Oct 1, 2021 | Bankruptcy

When hard times hit, declaring bankruptcy may be the most sensible thing to do. Essentially, bankruptcy is a legal process that is designed to provide debt relief for individuals or businesses that are unable to pay their bills. Bankruptcy is meant to help honest people who find themselves in difficult debt situations. 

However, some debts cannot be wiped out by bankruptcy. These are known as “non-dischargeable” debts, meaning that you must still repay them once the bankruptcy proceeding is complete. 

Here are some of the debts that you generally cannot clear away with bankruptcy:

Student loan debt

Although change may be on the horizon, this is perhaps the most common of non-dischargeable debts. The reasoning behind classifying student loans as non-dischargeable dates back to the 1970s when most college graduates were able to land gainful employment and repay the loan fairly easily.

Mortgage debt

Mortgages are treated as secured loans because they are attached to the home as collateral. However, if you stop making payments on your mortgage, the creditor is within their rights to repossess the home and put it up for sale to recover the deficiencies. To keep your home through the bankruptcy process, you will need to mobilize enough finances to bring your payments up to date. 

Debts incurred via crime

It is in the interest of the public that those who are found guilty of committing crimes are not allowed to escape the consequences associated with their crimes. As such, the federal bankruptcy laws do not allow debts incurred through criminal activities like fraud, embezzlement or larceny to be forgiven through bankruptcy. The only exception to this rule is property damage when filing Chapter 13 bankruptcy. 

Bankruptcy is a legal tool that you can use to get a fresh start in life. However, before taking this route, it is important that you understand what is and is not included in a bankruptcy proceeding.

 

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