A Chapter 7 discharge will eliminate the majority of your debts. This does not happen for “free,” however. In exchange for all (or most) of your debts being wiped out, you are expected to relinquish your assets to pay off the unpaid balances you owe to your creditors. The good news is that most people do not lose any property at all to the liquidation and they still receive the discharge of their debts. The bad news is that not all debts are dischargeable under Chapter 7.  

The Light at the End of the Tunnel

Anyone who has lived with bad credit knows how difficult life can be with a low credit score. It is ridiculously hard to get a loan of any type. Unless you sign your life away to a loan shark, you will experience difficulties if you want to obtain a loan for a house or a car. Forget about getting a credit card - it is not going to happen. Even renting a house or apartment or getting a job could be troublesome with bad credit. 

If you have lived this type of existence, year after year, Chapter 7 bankruptcy could be the light at the end of the tunnel. As we mentioned, a Chapter 7 bankruptcy wipes out most of your debt. For many individuals and couples, it will clear up all of their debt. However, some people will not be able to get rid of all of their debts because bankruptcy laws do not allow certain debts to be discharged.  

Common Debts Chapter 7 Will Not Eliminate

Congress has stipulated certain debts that they felt should not be wiped out under Chapter 7. There are always exceptions to the rules, but if there happens to be an exception to these non-dischargeable debts, it would be particularly difficult to qualify for. A seasoned bankruptcy attorney can help you determine if your debts are dischargeable or not and if there is a possibility of getting your non-dischargeable debts eliminated. 

Common Chapter 7 non-dischargeable debts:

  • Unpaid alimony, child support, or any other domestic support obligations;
  • Student loans;
  • Recent unpaid taxes, taxes that were filed late or never filed, and payroll taxes such as trust fund taxes;
  • Fines and penalties for violating the law such as traffic tickets, parking fines, and criminal restitution;
  • Damages to an individual or property arising from motor vehicle operation while under the influence of drugs or alcohol;
  • Debts that you incur after your Chapter 7 petition was filed.

Exceptions to the Exemptions

Student loans are typically not allowed to be discharged under Chapter 7. However, if you can prove that you meet a certain standard of financial hardship, you might be an exception to the rule. They will never be automatically discharged.

In order to have your student loan discharged in your Chapter 7 bankruptcy petition, you have to file a lawsuit against the student loan lender. This type of lawsuit is called an “adversary proceeding,” and it must coincide with your Chapter 7 case. In the adversary proceeding, you will be required to present enough evidence to the judge presiding over your bankruptcy case to prove “undue hardship.” 

Not only is the financial standard extremely difficult to prove, but you can also expect the Department of Education (or your student loan lender) to send their lawyers to aggressively defend your lawsuit. Even if you are able to convince the judge that you cannot pay your student loan and the debt is discharged, there is a good chance that the lender will attempt to appeal the decision in hopes that a higher court will overturn it. Fighting the adversary proceeding will cost more time and money if this happens. 

Fighting the Fight

The bottom line? It is certainly possible to persuade the judge that paying your student loans will cause you undue hardship. However, an adversary proceeding is often not only difficult but also time-consuming and costly, no matter how compelling your argument is. You can expect the lender to defend the debt and make it extremely difficult for you to continue the fight, especially because it pushes off the discharge of all of your other debts while the adversary proceeding continues. 

If you have student loans that you want to be discharged in your Chapter 7 bankruptcy, a reputable bankruptcy attorney can help you prepare for everything you might face in an adversary proceeding. While you can take the lenders on yourself in a bankruptcy pro se, you will be facing the lender’s lawyers, who fight these cases all of the time. Your best bet, in situations like yours, is to have a lawyer who is accustomed to taking on lenders in adversary proceedings standing at your side.

Are You Considering Filing For Bankruptcy?

If you feel bankruptcy is the best option for your financial situation you need to speak with an experienced bankruptcy lawyer as soon as possible. Please contact us online or call our office directly at 888.348.2616 to schedule your free consultation.

James Roswold
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James Roswold is a Kansas & Missouri personal injury, workers comp, and medical malpractice attorney.