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3 Dischargeable Debts In Bankruptcy

Posted on: December 4, 2017 by in Bankruptcy, debt
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In the words of several Supreme Court Justices, the Bankruptcy Code is designed to give the “honest but unfortunate debtor” a fresh start. This label applies to almost all the voluntary bankruptcy petitioners in Illinois and Indiana. Since it would be impossible to get this fresh start with unpaid accounts still hanging over the debtor’s head, most all unsecured debts are dischargeable. “Unsecured debts” are those that include only a promise to pay and are not secured by property, such as a house or car.

That being said, there are some restrictions and limitations on discharge, or forgiveness of debt.

Medical Bills

The leading cause of consumer bankruptcy filings is also the classic example of unsecured and dischargeable debts. Because they are usually involuntary (no one asks to get seriously ill), many moneylenders are also a little more understanding about medical bill-related bankruptcies, especially if the debtor has a reasonably good credit history otherwise.

Bankruptcy ends the obligation to repay the debt but not the medical debt itself. That’s normally a good thing, because many medical creditors are willing to accept a partial payment post bankruptcy and notate the debt as “paid,” because they know that a partial payment is much more than they are likely to get otherwise. Such a note helps improve the debtor’s credit score and also demonstrates additional financial diligence to other potential creditors.

Credit Cards

Rising interest rates are just one reason that credit card debt now eclipses $16,000 per household. Now that the Great Recession is in the rearview mirror for most people, they have more confidence and are spending more. Unfortunately, many of us spend money that we do not have, and that sometimes leads to bankruptcy filings.

The automatic stay often comes into play with regard to credit card debt, because these moneylenders are normally quick to file suit over delinquent accounts. Under Section 362, all these lawsuits must stop at the moment the debtor files a voluntary petition, at least in most cases. Furthermore, since the discharge order eliminates the obligation to repay the credit card, the lawsuit cannot be revived.

Taxes

Past due state and federal income taxes are both dischargeable in bankruptcy, provided that the following conditions are met:

  • – The tax must be at least three years old,
  • – The returns must have either been filed on time or at least been on file for a minimum of two years, and
  • – The debt has not been assessed in the last 240 days (in plain English, that usually means the taxpayer has not received a collections notice in the last nine months).

Bankruptcy only discharges past-due tax debt and not any tax debt associated with fraud or willful evasion. Furthermore, if the taxing authority has filed a lien, that lien remains in place, because the bankruptcy judge only has the power to extinguish the legal obligation to repay the debt.

Some unsecured debts are not dischargeable for policy reasons, such as family support obligations (FSOs). However, the automatic stay still applies, so bankruptcy will stop FSO-related lawsuits and wage garnishment.

Reach Out to Experienced Attorneys

Most people emerge from Chapter 7 or Chapter 13 bankruptcy with no unsecured debt. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Resources:

usatoday.com/story/money/personalfinance/2017/05/05/this-is-the-no-1-reason-americans-file-for-bankruptcy/101148136/

time.com/money/4607838/household-credit-card-debt/

Four Dischargeable Debts In Bankruptcy

Posted on: October 9, 2017 by in Bankruptcy, chapter 13, chapter 7
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The end result of a bankruptcy petition, in almost all cases, is a fresh financial start for the honest yet unfortunate debtor. To get this fresh start, the bankruptcy judge will discharge (legally forgive) many different kinds of debts.

Sometimes, debtors want to pay what they owe, or at least most of it, but they lack the means to do so. Such repayment is an option in both Chapter 7 and Chapter 13 cases, because even if the debt is legally discharged, the moneylender will almost always still accept payments.

Credit Cards

The math is very simple. Since 2003, wages have increased by 28 percent and prices on many items have increased between 35 and 55 percent. Something has to fill in the gap, and in most cases, that something is borrowing money on credit cards. In fact, the average credit card-holding household has account balances over $16,000 in revolving debt alone.

There is no doubt that poor financial planning and overspending account for some of this debt, but unexpected emergencies, such as medical bills and unemployment, account for a lot more.

Since there is no security agreement, credit card debt is dischargeable in both Chapter 7 and Chapter 13 cases. In addition, because of the automatic stay, moneylenders cannot pursue any adverse actions, such as lawsuits, while the case is pending.

Medical Bills

As most people might expect, medical bills have increased more than most other types of expenses over the past fifteen years, and even if the debtor has good medical insurance, the membership fees, copays, and deductibles are often financially debilitating.

Legally, medical bills fall into the same category as credit cards and so they are completely dischargeable.

Signature Loans

Small Business Administration and other bank loans, as well as payday and other nonbank loans, are also unsecured, even if the lender required bank account information or if the debtor agreed to a certain withdrawal on a certain day.

Student loans, whether or not a governmental unit guaranteed them, are only dischargeable if the debtor establishes undue hardship, and admittedly, that is not an easy showing to make in court.

Taxes

Somewhat similarly, income taxes, as opposed to payroll and other kinds of taxes, are dischargeable only under limited circumstance, but the showing is a little easier to make because it is based on time as opposed to other circumstances. The rules for both the IRS and state taxing authorities are:

  • Tax must be at least three years old,
  • Returns have been on file for the past two years, and
  • The authority has not assessed the debt in the last 240 days, which usually means that the taxpayer has not received a notice or bill in that time period.

The IRS, as well as states, are very particular on dates, and it is not unusual to see opposition based on one or two days off the deadlines.

If the taxing authority placed a lien on the taxpayer’s assets, such liens remain, because the bankruptcy judge has limited powers.

Contact Experienced Attorneys

Most debts are dischargeable in bankruptcy. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We handle cases in both Illinois and Indiana.

Resource:

nerdwallet.com/blog/average-credit-card-debt-household/