The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Information on this website may not be current. This website may contain links to other third-party websites. Such links are only for the convenience of the reader, user or browser; we do not recommend or endorse the contents of any third-party sites. Readers of this website should contact their attorney, accountant or credit counselor to obtain advice with respect to their particular situation. No reader, user, or browser of this site should act or not act on the basis of information on this site. Always seek personal legal, financial or credit advice for your relevant jurisdiction. Only your individual attorney or advisor can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, contributors, contributing firms, or their respective employers.
Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them. Compensation is not a factor in the substantive evaluation of any product.
A reader, Susan, wondered if revised laws mean that bankruptcy no longer wipes out debt, and instead requires that debts be repaid. She wrote:
You have to reorganize and pay what you owe, not wipe them out. Am I correct? Just asking.
Glad you asked — it can be confusing, because it depends on what kind of debt and what kind of bankruptcy.
Consumer law attorney Jason Krumbein says changes in laws have made bankruptcy much more difficult. “To qualify for a Chapter 7 (or liquidation) bankruptcy,” he said in an email, “you must (a) have income below the median standard for your state, (b) have expenses in excess of your income and — while not strictly required — (c) not have any assets with equity that you are not willing to lose.”
A second type of bankruptcy, Chapter 13, involves reorganizing debts, Krumbein said. That type involves following a repayment plan, and debts not paid at the end of it can typically be erased.
Some debts — including child support, alimony, some types of student loans, criminal penalties, judgments resulting from drunken driving, and some taxes — cannot be erased, even in bankruptcy. Krumbein cautioned that if a debt collector tells you a certain debt cannot be discharged, it’s a good idea to check with a bankruptcy lawyer.
Both types of bankruptcy cost hundreds of dollars to file and do serious damage to your credit. However, by the time you’re contemplating bankruptcy, your credit scores may have already tanked. (If you are worried about your credit scores, monitoring them can at least give you a clear idea of what’s happening with your credit; you can check your scores for free through Credit.com).
If repayment (or repayment under the original terms) is hopeless, it can be worth it to start over with a clean slate, but as our reader Susan noted, bankruptcy may not erase every credit obligation.
The decision to file bankruptcy is a serious one, and should be made only after exploring other options for getting out of debt. It’s especially important to understand which debts can be erased in bankruptcy and which ones cannot.
Image: Boyrcr420
May 30, 2023
Managing Debt
September 7, 2021
Managing Debt
December 23, 2020
Managing Debt