Filing Bankruptcy Won’t Make You Debt Free

First, the definition: bankruptcy is a legal declaration of one’s inability to pay off large amounts of debt. When an individual declares bankruptcy, the bankruptcy court will clear the individual of responsibility for those debts which are legally dischargeable. Under United States bankruptcy law, two forms of bankruptcy available to individual debtors are chapter 7 bankruptcy and chapter 13 bankruptcy (chapter 11 filings are possible for an individual, but uncommon).

Chapter 7, or liquidation bankruptcy, is the most common type of bankruptcy filed in the United States. In contrast to chapter 13 bankruptcy, chapter 7 bankruptcy offers immediate relief; after a successful chapter 7 filing, all dischargeable debts are wiped out.

Chapter 13, or reorganization bankruptcy, on the other hand, creates a payment plan which allows one to repay debts over a period of time (usually five years) under more reasonable terms. In order to file for chapter 13 bankruptcy, one must have a regular source of income with which to repay said debts. An advantage of this form of bankruptcy is that the debtor is allowed to keep assets which may be liquidated under chapter 7 bankruptcy.

Unfortunately, there are some debts which are only dischargeable under chapter 13 bankruptcy, and certain debts which are not dischargeable at all. Other debts are dischargeable only under chapter 13 bankruptcy, including: - Marital debts incurred in a divorce or settlement agreement - Debts incurred to pay a non-dischargeable tax debt - Court fees - Condominium, cooperative, and homeowner’s association fees - Debts from retirement plan loans - Debts that could not be discharged in a previous bankruptcy

Debts which are not dischargeable by any means include: - Domestic support obligations, such as alimony and child support payments - Student loans, except in cases of undue hardship - Debts incurred by acts of fraud - Debts which arise from willful or malicious acts - Criminal penalties - Intoxicated driving debts

Income tax debts can be discharged, but only under certain circumstances. The restrictions include, but are not limited to that you have to have filed a tax return for the year you owed the taxes, and the tax debt must be from a tax return filed at least two years before your bankruptcy filing.

When you file bankruptcy, be sure to report all your creditors and their addresses. Do not skip any debts. The bankruptcy court is likely to uncover anything you try to conceal. Honesty is by far the best policy. Besides, if you do not list a debt, it may not be discharged, and it may come back as being past due later on.

Life after bankruptcy can be as hard or as easy as the debtor makes it, to a certain extent. A bankruptcy filing in one’s credit report will make it harder for him or her to be granted credit in the future, and under chapter 7 bankruptcy, certain assets may be liquidated. However, the debtor can prevent creditors from taking his or her bank account or wages - though liens on a home may still remain. Being honest with your bankruptcy lawyer and cooperating with the court and creditors may make life easier after a bankruptcy filing - hiding secrets from your lawyer and the court can only cause more problems.

While filing for bankruptcy can relieve you of the burden of debt, a prospective filer must do their due diligence to know which debts cannot be discharged, and to make sure that all dischargeable debts are, in fact, discharged. Sometimes a person has no choice but to file for bankruptcy because of medical bills or other forces beyond their control; just remember that you control what you do with your life after bankruptcy.