In our article What Bankruptcy Can Accomplish we cover the powerful benefits of filing for bankruptcy. It is important to understand how bankruptcy can help you, but it is also important to understand the limits of bankruptcy.
There is a lot of misinformation about bankruptcy that gets passed around. When we sit down with our clients for our free consultation, we take the time to clear up misinformation and explain what filing for bankruptcy can and cannot accomplish for you and your family.
Bankruptcy cannot erase certain types of debt.
In bankruptcy, debts are classified as dischargeable or nondischargeable. Dischargeable debts can be erased in bankruptcy, whereas nondischargeable debts cannot. Debts that are nondischargeable survive bankruptcy and you will still be legally obligated to pay them regardless of filing.
The following types of debts are generally dischargeable:
- Credit cards
- Medical bills
- Collection agency debts
- Personal loans
- Past due rent
- Most civil court judgments (unless based on fraud)
- Certain tax debts (older tax liabilities may be erased)
- Other unsecured debts (debts that are not backed by collateral, such as a home or car)
If you successfully file for bankruptcy, dischargeable debts are erased forever and you are not obligated to pay them back.
The following types of debts are generally nondischargeable:
- Student loans
- Certain tax debts (newer tax liabilities are not erased)
- Back child or spousal support
- Secured debts, such as your house or car (if you want to keep the item, you must pay back the loan)
- Civil or criminal debts based on fraud.
Even if you successfully file for bankruptcy, nondischargeable debts are not erased and you will still be legally obligated to pay them back.
Debts incurred right before filing bankruptcy may be nondischargeable.
Bankruptcy laws are designed to prevent abuse. A person cannot incur new debt (like running up a credit card) for luxury items and then turn around and erase that debt in bankruptcy.
There is a rebuttable presumption that “debts owed to a single creditor and aggregating more than $675 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable.” 11 U.S.C. §523(a)(2)(C)(i)(I).
This means that debts totally over $675 for “luxury goods or services” to anyone creditor (i.e. charged on one credit card) in the 90 days prior to filing for bankruptcy are presumed nondischargeable. While the term “luxury goods or services” is not explicitly defined, the Bankruptcy Code states that it “does not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor[.]”11 U.S.C. §523(a)(2)(C)(ii)(II).
Also, understand that incurring debt without the intention to pay it back can amount to bankruptcy fraud.
Only debts incurred before the date you file for bankruptcy can be discharged.
All dischargeable debts you owe on the date you file for bankruptcy will be erased when you receive your bankruptcy discharge order. Any debt you incur after the date you file is not part of your bankruptcy case and will not be erased.
We hope this post has helped you better understand the limits of bankruptcy. We encourage you to also read our article What Bankruptcy Can Accomplish. The better you understand bankruptcy, the better equipped you will be to make the decision that is right for you.
Call us today at (912) 351-9000 or contact us to schedule a free consultation.
The Law Office of Barbara B. Braziel has over 35-years of bankruptcy experience. We are the premier bankruptcy law firm in Savannah, GA and we practice exclusively in bankruptcy law. We invite you to get to know us here and read about the clients we’ve helped here.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.