Making Certain You Get the Maximum Benefit from a Bankruptcy Petition
You’re struggling to meet your financial obligations, whether because of the loss of a job, an unexpected illness or other personal crisis. When you compare your two primary options—Chapter 7 and Chapter 13—the ability to permanently discharge debts in Chapter 7 can be very appealing. It’s important to understand, though, that some debts cannot be discharged under any circumstances, while others may only be extinguished in very limited circumstances.
Domestic Support Obligations
The bankruptcy law identify alimony and child support as domestic support obligations and do not allow them to be discharged, either in a Chapter 7 liquidation or a Chapter 13 reorganization. You can discharge the obligations of a divorce property settlement in a Chapter 13, but not in Chapter 7.
Student Loan Debt
Student loan arrearages can be discharged, but only in rare situations. To permanently rid yourself of the obligation to repay student loan debt, you must file an additional petition, known as an “adversary proceeding.” The courts use a number of different tests to determine whether student loan obligations are dischargeable:
- Some allow you to discharge student loan payments if you can show that you would incur an “undue hardship” if you had to make the payments
- Many courts follow the Brunner standard, which allows discharge if you can show 1) that you lack the resources to maintain a minimal standard of living if you had to pay your student loan payments, 2) that your current financial situation is likely to persist for most of the repayment period of the loan, and 3) that you have made a good faith effort to repay the loan.
- A minority of courts will make a decision based on the “totality of your circumstances.”
As with student loan obligations, some tax arrearages may be discharged, but only in extremely limited circumstances:
- You may only discharge income taxes
- Your income taxes must have been due at least three years prior to the filing of your bankruptcy petition
- You must have filed the return for which the income taxes were due at least two years before the day you filed for bankruptcy
- The Internal Revenue Service must have assessed the income tax at least 240 days before prior to the date of your bankruptcy petition
- There must be no evidence of fraud or willful evasion of your tax liability
Contact Attorney Howard N. Sobel
At the office of Howard N. Sobel, we provide personal bankruptcy counsel to men and women throughout the state of New Jersey. Contact our office online or call us at 856-424-6400 to set up a free initial consultation. Evening and weekend appointments can be arranged upon request. We accept all major credit cards.
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