The Untouchables: 5 Debts Bankruptcy Can’t Do Anything About
Bankruptcy has become a viable option for many consumers burdened with debt and challenged by unemployment. Personal bankruptcies rose dramatically from 2008 to 2010, the federal government reported. Even though the numbers have been declining since, there were still more bankruptcies in 2012 than in 2008 - more than 1 million a year.
Rising medical costs aren't helping matters, either; a Harvard study indicates that medical costs are a major contributor to more than 60% of bankruptcies.
Luckily for these consumers, medical bills are among the obligations that can be addressed through bankruptcy. Not everyone is so lucky, though. Far from being the "clean slate" that many believe it is, bankruptcy won't wipe out everything a consumer owes. Here are five obligations that consumers are still responsible for -- even after bankruptcy:
1. Student Loans
Students who rack up debt with the idea that they can walk away are in for an unpleasant surprise. These loans remain after bankruptcy, and graduates who simply stop paying on their student loans can find themselves ineligible for government assistance and other helpful programs. "There may be an exception if you can demonstrate hardship," says John J. Keenan, a partner at Keenan & Austin, P.C. in Michigan.
Most students, though, are stuck paying their loan bills.
2. Alimony and Child Support
Consumers who owe payments for the support of dependents are required to continue paying that obligation. Bankruptcy won't erase the requirement to pay alimony to a former spouse, or child support. Consumers experiencing hardship can ask a judge to modify the terms of the alimony or child support agreement, but bankruptcy doesn't exempt the consumer from meeting these obligations.
3. Law Violations
Debt incurred due to violations of the law are not dischargeable through bankruptcy. According to Keenan, this includes traffic ticket fines, ordinance violation fines, and other fines. Additionally, debt incurred as a result of fraudulent or criminal activity can't be discharged through bankruptcy.
4. Recent Taxes
Tax debt at the federal, state, and municipal levels, due within the last three years, can't be discharged through bankruptcy. With recent tax obligations, the courts encourage taxpayers to work out a payment plan to try and catch up with obligations. Keenan does say that there are some exceptions to this general rule: "You may be able to discharge property taxes due on real property that you lose to foreclosure, or as a result of the bankruptcy."
5. Recently Incurred Debt
For the most part, bankruptcy deals with discharging debts that aren't likely to be paid, due to financial hardship. However, some consumers attempt to get "more bang for their buck" by running up debts on credit cards if they plan to file for bankruptcy. According to Keenan, this is a no-no. Large credit card purchase or cash advances incurred within 70 to 90 days of filing might not be considered dischargeable by the court.
Keenan also points out that consumers need to list all of the eligible debts on the bankruptcy petition. Debt not listed won't be considered for discharge.
For many consumers, bankruptcy can be a way to get rid of financial encumbrances and start again. However, not everything can be erased.