Your Debt Could Be Eliminated Through Bankruptcy
In 2016, there were 819,159 bankruptcy cases filed. In many instances, individuals filed because they had significant medical or credit card debt. The good news is those and many other types of debts can be discharged by filing for bankruptcy.
Most Unsecured Debts Can Be Eliminated
An unsecured debt is one that is acquired without the need for collateral or a co-signer. Examples of unsecured debts include credit card balances, medical bills or personal loans. These debts are generally eligible to be completely discharged in either a Chapter 7 or Chapter 13 bankruptcy. The only exception is if a credit card is used to make a tax payment. In such a scenario, the debt generally cannot be discharged as it becomes a priority payment.
Secured Debts Could Be Discharged as Well
If you own a home or car, it is possible that any loan balance associated with those assets can be discharged. However, a creditor does retain an interest in a property regardless of whether you decide to file for bankruptcy. In other words, a creditor could simply wait until the bankruptcy case ends to repossess a vehicle or foreclose on a home.
One advantage of filing for bankruptcy is that it may be possible to negotiate new loan terms or ask for a debt cramdown. A cramdown allows you to reduce the balance on a vehicle loan to its actual market value. For example, say that you owed $10,000 on a car loan for a vehicle that was only worth $7,000. The cramdown would forgive the $3,000 in negative equity. You could also choose to return the vehicle to the lender with no further obligation to make payments.
Judgments Against You May Go Away in Bankruptcy
If a creditor obtains a judgment against you, it could be discharged by a bankruptcy judge. However, in the event that there is a lien on a property, it will not necessarily be wiped away. You would have to go through a separate process in an effort to have it removed. In some cases, a lien may be stripped if the creditor is a junior lien holder on an asset.
You May Choose to File for a Partial Bankruptcy
Depending on your current financial circumstances, you may decide that filing for bankruptcy can be helpful in eliminating only the debts that don’t make sense to repay. For instance, if you owed $50,000 in credit card debt, you could seek to eliminate that balance through bankruptcy. However, you could also choose to continue making payments on your car or home loan to retain those assets.
What Types of Debts Aren’t Discharged in Bankruptcy?
While bankruptcy can be an effective way to get rid of mortgage, credit card or medical debt, it cannot eliminate some tax debt. It also cannot eliminate any child support balance that you may owe. This is because making child support payments is considered to be in the best interest of the child.
It is also a method of protecting the public from having tax dollars spent unnecessarily to support your child. Fines and other financial penalties that are levied for other violations of the law, such as failing to pay child support, will also generally remain even after filing for bankruptcy.
The government may decide to waive or forgive some of your debt in a bankruptcy case. This could occur if you can prove that paying personal or business taxes would be an undue hardship. The IRS could also choose to waive penalties or stop charging interest for a certain period of time to make it easier to pay your tax bill.
If you are in need of a bankruptcy attorney, Neuner & Ventura LLP may be able to help you with your case. We are located in Marlton, New Jersey. Give us a call at our law office today at (856) 596-2828.