People planning to file bankruptcy should get some knowledge about it before making the final decision because different types of debts are treated differently in bankruptcy. Some debts are discharged instantly or after a short period of time while others are required to be paid at any cost. There is also a third type of debt for which the individual can pay the amount after modification and can own any valuables to which it is attached. Therefore, a person who is considering filing for bankruptcy should be aware of how these debts are treated.
Given below is a list of priority debts that are not discharged despite a bankruptcy filing:
Debts that are not discharged are known as priority debts as they are required to be paid no matter what. When an individual files for Chapter 7 bankruptcy, lenders get their loan capital from the proceeds after an asset is sold. Priority debts can therefore be referred to as debts that a person has to pay even if there is not a single asset to sell, but if an individual files for Chapter 13 bankruptcy, then he or she can get the payment plan modified in order to provide them more flexibility in repaying the full amount.
Student loans – Loans provided by the government or any institution linked to the government are not discharged. If there is a student who wants to get their debt discharged, it requires showing that he or she has nothing to pay the debt and will face hardships, making it impossible to repay the debt which is difficult. There are some programs that assist students with loans in repaying them by reducing the amount or giving them more time for payment.
Debt for injuries or property damage – Debts that stem from injuring a person deliberately or damaging their property are not discharged. The reason of the injury can be an accident that happened due to impaired driving, but the person has to obey the court orders and pay the decided amount of debt depending on the damage. The person can get the debt restructured with the help of Chapter 13 bankruptcy.
Debt of tax – Any unpaid taxes are required to be paid and they are considered as debt until they are paid. Similarly, the debt of tax is not discharged. The amount decided by the court as penalty of any crime is also required to be paid at any cost. Only extreme circumstances can get the debt of tax discharged.
Fine ordered by court – Any fine ordered by court, any tickets issued and any vehicle registration fees are debts that are not discharged as the person has to pay it to the government.
Secured debts – Any borrowed money secured by an asset is known as secured debt and if the person is not able to pay the debt, then the asset becomes the property of the person who gives the money. If the individual files for Chapter 13 Bankruptcy, then they get the loan restructured to make it easy and to give a chance to pay the amount that is missed. Chapter 7 bankruptcy helps in keeping the asset and paying the missed debts, but it works only if the person pays the decided amount regularly.
Overpayment of benefits – If a person has received more money over and above their regular benefit sum, than then the excess amount will need to be repaid, and if the person is not able to pay it back for any reason, then it is considered a debt and it is not discharged. This benefit can be anything like the benefits given to unemployed individuals.
Child or spousal support debt – These types of debts are not discharged. A person can only get them restructured to pay the missed payments and the current payment is required to be paid regularly as decided.
Retirement plan debt – This is also a type of debt that is not discharged. Chapter 13 bankruptcy can only restructure it but it needs to be paid full under any circumstances.
All the above mentioned types of debts are needed to be paid. Chapter 7 and Chapter 13 bankruptcy can only assist in reducing the amount that is required to be paid or restructuring the plan; so the amount can be paid without much difficulty. The payment option of missed debt amount gives a chance to own the valuable for which there is a need of gaining knowledge prior to considering filing for bankruptcy.
Upside down loan
A person is said to have an upside down on a loan if he or she possesses a vehicle, home or any other asset that is not less than the amount which they are required to pay in debt. If the person files for Chapter 13 bankruptcy in a condition of upside down on a loan, then they get the modification in the debt as it helps in balancing the amount of debt with the current amount of the valuable. Repaying the debt is made easy by making the amount less monthly or the period of debt payment is reduced. There are some valuables that are worth less after a certain period passes. Therefore, filing for bankruptcy is a wise choice to pay the debt according to the current worth.
Conditions for debt discharge
The conditions in which the debt is discharged are given below:
- If the debt doesn’t include the fees or taxes other than the income tax
- The income tax is minimum 3 years old and the current amount of tax is not included in debt
- A person can prove that he or she didn’t avoid paying the tax intentionally
It is necessary to know that there are some types of debts that are not included in bankruptcy and the person requires paying them according to the plan decided by the lender when getting the loan. It is wise to consult a bankruptcy lawyer before filing for bankruptcy because it is not possible for every person to handle the procedure alone as most of individuals do not have much knowledge about bankruptcy laws.