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Many people under financial distress consider bankruptcy as an option to get back on their feet. Under normal circumstances, an individual files either a Chapter 7 or Chapter 13 bankruptcy. Simply put, a Chapter 7 is a liquidation bankruptcy in which a debtor’s non-exempt assets are liquidated and the proceeds from that liquidation are spread out to qualifying debtors. Unsecured debt, such as credit card debt, is normally discharged in a Chapter 7 bankruptcy. A Chapter 13 bankruptcy is also known as a “reorganization” bankruptcy, in which the court imposes a restructuring and puts the debtor on a payment plan, allowing him or her to keep most assets.
Unfortunately, not all debt is dischargeable in a Chapter 7 bankruptcy. One of these types of debt, receiving much attention lately, is student loan debt. Under federal law, any governmental, non-profit, or other educational loan is not dischargeable through bankruptcy. In 2005, the law expanded to cover private student loans as well. An exception to this law exists when a debtor can show that repayment of the loans would cause “undue hardship.” This standard is extremely hard to meet and usually involves cases of physical or mental disability making it impossible for a debtor to meet his or her financial obligations.
Luckily, the federal student loan program has many options for people unable to make payments on their student loans. There are unemployment deferments, economic hardship deferments, as well as programs like income-based-repayment through which a debtor's minimum payment cannot exceed a certain percentage of their monthly disposable income.
Other types of debts that are non-dischargeable in Chapter 7 bankruptcy include:
· Tax claims
· Debts not set forth by the debtor in the bankruptcy filing
· Debts for spousal or child support
· Debts for willful and malicious injuries to person or property
· Debts for certain condominium or cooperative housing fees
· Debts to governmental units for fines and penalties
· Debts for personal injury caused by operation of a motor vehicle while intoxicated
· Debts owed to certain tax-advantaged retirement plans
Simply because these debts are not dischargeable does not necessarily mean that bankruptcy would not benefit you. If you are struggling with making your payments on your financial obligations, bankruptcy could relieve some of the pressure by freeing up more of your income to deal with your non-dischargeable debt. Furthermore, you can’t squeeze blood from a turnip; in other words, if your are unable to pay your debts, your creditors will likely work with you to get something, or settle the debt for pennies on the dollar. These options are all very fact-specific, and in order to determine what course of action is best for you, you should meet with a St. Louis bankruptcy attorney to discuss your situation. The attorneys at the Westbrook Law Group practice exclusively in the area of bankruptcy law, and have the experience required to figure out a way to get you back on your feet. To schedule a free consultation, call the Westbrook Law Group at (636) 493-9231, or fill out our contact form to the right and a member of our staff will be in touch with you shortly.