While filing for Chapter 7 bankruptcy can provide people with a much-needed fresh financial start -- eliminating medical bills, credit card debt, payday loans, etc. -- it's also important to know its limitations. Specifically, it's important to know that there are certain debts that simply cannot be discharged via the Chapter 7 bankruptcy process.

Today's post will briefly examine some of these debts.

Student loans: Student loans are rapidly emerging as a real problem for many Americans -- both young and old alike. However, student loan debt -- including private loans, federal loans, and tuition assistance from a school/university -- cannot be discharged in bankruptcy.

If you are looking to discharge your student loan debt via the bankruptcy process, you will need to establish "undue hardship."

This means that you will have to demonstrate to the bankruptcy court that either you or your dependent has some type of debilitating physical or mental malady that prevents you from being gainfully employed.

This is a very difficult legal standard to satisfy.

Secured debts: A secured debt is one that uses an asset as security (i.e., collateral) for the loan. Simply put, if you don't make the required payments on a secured debt, the lender has the ability to reclaim the asset.

Accordingly, you cannot discharge a secured debt in bankruptcy and still keep the asset. However, you may surrender the item back to the lender in full satisfaction of the debt.

Keep in mind that there are certain bankruptcy exemptions -- allowing you to keep the property -- that you may wish to discuss with a qualified legal professional.

Alimony and child support: Neither alimony nor child support can be discharged in bankruptcy. The outstanding balance owed at the time of your filing will remain until it is paid.

Income tax liability: In general, income tax liability cannot be discharged in bankruptcy. However, there are certain circumstances where this may actually a possibility, depending upon whether certain requirements are met. Again, you may wish to discuss this with a qualified legal professional.

Restitution: If you caused someone to suffer physical injury and/or financial loss, and were subsequently ordered by a judge to pay them a designated sum of money, you cannot discharge it via bankruptcy. The outstanding balance owed at the time of your filing will remain until it is paid.

Regardless of your financial situation, contact an experienced legal professional to learn more about your rights and your options under Chapter 7 bankruptcy or Chapter 13 bankruptcy.

Stay tuned for more from our San Antonio bankruptcy blog ...

This post is for informational purposes only and is not to be construed as legal or financial advice.


Bankrate.com, "Debts that can't be wiped out in bankruptcy" Jan. 31, 2012