What Types Of Transactions Can Be Excluded From A Chapter 7 Bankruptcy?
In today's economy, it may take only a small financial misstep or patch of bad luck to end up with more bills than income to cover them. If you've found yourself in such a situation, you may be mulling the idea of filing for bankruptcy protection -- either under a Chapter 11 or 13 repayment plan or a Chapter 7 discharge. Read on to learn more about how a Chapter 7 discharge works, and which debts you may be stuck with even after filing for bankruptcy.
What types of debts are typically discharged in a Chapter 7 bankruptcy?
Most consumer debts are able to be eliminated through your Chapter 7 filing. In some cases, secured loans (those that are backed by a tangible asset, such as a mortgage or auto loan) may be discharged only if the asset itself is seized and returned to the creditor. In other cases, you may be able to reinstate these loans (by continuing to pay them) or exclude them from your filing.
Credit card debt may also usually be discharged through bankruptcy -- and you won't be forced to sell any of the assets you used these funds to purchase. You can also discharge most types of medical debt as long as your debt load is higher than your available income.
What debts may not be discharged?
Although a Chapter 7 filing can generally free you of the most common types of debt, there are a few debts for which you will remain personally liable.
Obligations to another individual -- such as alimony and child support -- are never dischargeable in bankruptcy. Even if your current child support obligation is much higher than you can reasonably afford, the bankruptcy court has no power to change or eliminate these payments. You'll instead need to appeal to the trial court who entered the alimony or child support judgment to see if you can have back payments waived or future payments lowered.
Most student loans are also not forgiveable in bankruptcy. Certain federally-backed student loans may stay with you for life -- you'll even find that the government can confiscate your income tax refunds and Social Security benefits to pay off these loans. If you are permanently and severely disabled (enough that you would have extreme difficulty ever finding any future paid work) you may be eligible for a hardship discharge, but these are very rare. Contact your social security attorney or visit http://www.johnehornattorney.com to learn whether you are eligible.
Are there exclusions to otherwise-dischargeable debts?
In some cases, even debt that would otherwise be discharged in a Chapter 7 may become ineligible for bankruptcy. Any transactions made during the "look-back" period -- or the 3 to 12-month period before your bankruptcy filing -- will be carefully scrutinized. If the bankruptcy court believes you made a purchase or payment in an attempt to defraud the bankruptcy court (for example, running up your credit cards on consumer goods with no plans to repay them before filing for bankruptcy) this transaction may be exempted from bankruptcy, or you may be altogether unable to file for protection.
The look-back period for friends and family members is usually 1 year, while the look-back period for credit transactions is 90 days, or about 3 months. If you've made any purchases or repaid any loans to family members, you may wish to wait until after the look-back period has expired before you file for bankruptcy protection. If there are any questionable transactions, the bankruptcy court may scrutinize your application more carefully, delaying the process. In some cases, particularly with repayment of loans to family members, the bankruptcy trustee can even seize these assets and use them to pay other creditors.