Do you have a serious debt that bankruptcy does not write off? If that has convinced you that bankruptcy can’t help you, here are 6 reasons why it can.
If you owe taxes, student loans, child or spousal support obligations or any other debts that you know bankruptcy does not discharge, you should absolutely still get legal advice from a competent attorney, including about possible bankruptcy options. Here’s why.
1. The discharge rules are complicated, so your debt might actually be able to be discharged. Things are not always what they seem. Millions of dollars of income tax debt are discharged in bankruptcy every year. There’s a complicated list of conditions to meet, but your tax debt just might meet them. Student loans are difficult to discharge, but sometimes they can be. Occasionally even apparent spousal or child support obligation is dischargeable, if it doesn’t fit the legal definition for bankruptcy purposes. If you think that a debt can’t be discharged, you may well be right. But it’s certainly worth finding out for sure.
2. A debt that could not be discharged earlier, maybe now can be. Some of the discharge rules are time-sensitive, or are affected by changes in your circumstances. So a close look at your situation may reveal a way to discharge a debt now or at a particular point in the future.
3. Even if a debt can’t be discharged, the bigger problem of aggressive collection can be solved. Often your challenge is not so much the fact that you owe a debt but rather the extremely hurtful way it is being collected. You may well accept the reality that you need to pay a tax debt or some back child support, but just need to be able to pay it on terms that you can live with. A Chapter 7 case could discharge all your other debts so that you would be able to pay your taxes afterwards with the large installment payments the IRS is requiring. A Chapter 13 case would stop your support enforcement agency from threatening to take your driver’s license and would give you time to pay the back child support.
4. Take control over the monthly payment amount on the debt that isn’t discharged. Creditors whose debts aren’t discharged in bankruptcy happen to be same ones to whom the law gives extra powerful collection power outside bankruptcy—the IRS, support enforcement agencies, and student loan collectors. Chapter 13 in particular clamps down on their power, and allows you to make payments based on what you can actually afford.
5. Stop most piling on of interest, penalties, and other costs. Income taxes and various other kinds of debts are that much more difficult to make progress on because of accruing interest and penalties. Most of these additions to the original debt stop as soon as you file a Chapter 13 case, and then don’t get added on if you finish the case successfully. So you end up paying significantly less on these debts.
6. Discharge debts that you can, in order to be able to concentrate on those you can’t. Most people who have a significant debt or two that cannot be discharged in bankruptcy have other debts that can. In a Chapter 7 case, you would quickly discharge those you could, so you could pay off much faster any debts that weren’t discharged. And in a Chapter 13 case, you would be protected from collection efforts by those creditors with nondischargeable debts, while you would focus on paying off those debts.
As you can see bankruptcy—Chapter 7 or 13, depending on your circumstances—can be extremely helpful, even if you have debts you can’t just write off. So just because your biggest immediate problem may be such a debt, don’t let that prevent you from getting legal advice about your bankruptcy options.