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Are all debts forgivable under bankruptcy?

Many people use bankruptcy as a means to eliminate debt and gain control over their financial situations. Bankruptcy does discharge certain debts but not all of them. To better understand if this type of action is best for you, you need to have a clear understanding of which debts are not able to be discharged.

In Chapter 13 bankruptcy, your debts are paid according to a special payment plan. In Chapter 7 bankruptcy, certain debts are paid first from the sale of any assets you have.

It is important for you to know that certain debts take priority over others. They are priority debts, and they include the following:

1. Student loans

These loans are government funded. In rare cases, some can be discharged. However, there are certain standards and conditions in place that must be met. Getting them discharged through bankruptcy can be challenging because you must prove that paying them back would cause you extreme hardship.

2. Tax debts

Bankruptcy does not forgive most tax debts, including payroll taxes and local, state and federal tax liabilities from current and previous years. However, some tax debts that are old and meet certain criteria may qualify for forgiveness. If you are having trouble making payments or experiencing extreme hardship, you should try to work things out with the IRS first.

3. Alimony and child support payments

Chapter 7 and 13 bankruptcies have different requirements for alimony and child support. Chapter 13 makes it possible for you to catch up on any late payments by structuring them into a payment plan. You must remain current on any future payments once you are no longer in bankruptcy. Chapter 7, on the other hand, does not include child and alimony support obligations; therefore, they still are owed and subject to collection.

4. Secured debts

If you have fallen behind on your car note or mortgage payments, you should consider filing for Chapter 7 because it makes it possible for you to keep certain assets while you get back on track with your payments. All missed payments are structured into a payment plan that brings those accounts current while you are in bankruptcy. Once you are free of bankruptcy protection, you would need to continue making regular payments.

Chapter 13 essentially establishes a payment plan that includes any late payments, interest and penalties and restructures them into more manageable payments. Your assets may or may not still be repossessed.

Bankruptcy is not a cure-all for getting debts erased. Those are considering filing for Chapter 7 or Chapter 13 are advised to discuss options with a bankruptcy attorney.

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