Did you know that there are 6,310 new bankruptcies filed – per day?
20 years ago, there were only 1,500 new bankruptcies filed daily – that’s a huge difference over the course of two decades. Bankruptcy is a very real occurrence in today’s financial market – and it pays to know as much as possible about it in case you or your loved ones ever have to go through one. We’ll be covering Chapter 7 bankruptcy in our article.
What is a chapter seven bankruptcy?
Chapter 7 of the Title 11 of the United States Code (Bankruptcy Code) governs the process of liquidation for individuals and businesses. If you or your business is badly in debt and cannot service this debt or your creditors, Chapter 7 may be an option for you. In a Chapter 7 bankruptcy, the individual may keep certain exempt property.
You need to be aware that not all of your debts will be discharged (eliminated) when the bankruptcy process has been completed.
Debts that will remain after a Chapter 7 bankruptcy
- Student loans – unless repaying these loans will cause undue hardship on you or your dependents (discussion on student loans continues below)
- Court fees
- Any recent local, state, or federal taxes
- Alimony (spousal maintenance) and child support
- Restitution, penalties, and fines imposed by the government
- Debts from DUI (driving under the influence) arrests
- Debts from fraud – these can include debts for luxury items and services you’ve purchased during the 90 days before your bankruptcy filing, as well as cash advances within 70 days after filing
- Debts from malicious and willful acts
- Debts from larceny, embezzlement, or breach of fiduciary duty
Information on student loans and bankruptcy
As I’ve mentioned, student loans from college and university are usually not eliminated in the Chapter 7 bankruptcy process. The only way is by proving to a court that paying these student loans will cause you or your dependents undue hardship. To prove this, you must demonstrate that you cannot make these payments when your bankruptcy is filed and won’t be able to make these student loan payments in the future. You have to apply for this undue hardship discharge before the bankruptcy process of your other debts is granted. You usually have to pay extra once the case is filed, as this is generally not included in your standard bankruptcy legal fees.
There isn’t really any set-in-stone requirements for getting your student loans discharged via undue hardship. What there is though, is a 3 step process in which the court will determine your eligibility.
- Income – Will you able to maintain a minimum level of standard of living for you and your dependents in case you are forced to pay your student loans?
- Duration – If the answer to the above is No, will this situation continue for a significant length of time in the repayment period?
- Good Faith - Have you made a good-faith effort on your part to try to repay these student loans before the bankruptcy process?
The reason why we have bankruptcy laws is to allow people to have a fresh start in their financial lives. It may be a tough road, but it can give you a chance to kick-start your life again and get back on your feet.