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Chapter 7 can wipe out most debt, not all

Getting into a financial hole is easy, climbing out of it can be much tougher. But sometimes struggling to climb out is not the best approach. Sometimes debt is like quicksand, the harder you try the faster you sink. In these situations, a better approach may be to file for Chapter 7 bankruptcy.

Chapter 7 has many advantages that readers may be familiar with from previous blog entries. For one, filing puts an immediate halt on creditors' efforts to collect. That means no more letters or calls from creditors making threats. For another, Chapter 7 can eliminate many forms of debt.

But, while Chapter 7 can eliminate most forms of debt, it cannot do away with all forms. For instance, while Chapter 7 gets rid of most unsecured debt, there a number of unsecured debts that Chapter 7 won't touch. These include alimony, child support and federally funded student loans.

And, in some cases, there are debts that Chapter 7 won't reach, but Chapter 13 will. These include certain tax obligations, debts for willfully or maliciously injuring property or property division as part of separation or divorce proceedings.

That said, there are exceptions. For instance, while Chapter 7 normally will not discharge tax debt, it can under narrow circumstances. Those are: the taxes are income taxes, the petitioner filed a tax return, the debt is three or more years old, the petitioner has not committed fraud or willful evasion and, finally, the debt was either assessed by the IRS in the previous 240 days before the bankruptcy petition or not yet assessed at all.

To learn more about Chapter 7 and when it can help, Tennesseans may benefit from discussing their situation with an experienced bankruptcy attorney.

Source: Findlaw, "What Happens After Chapter 7 Bankruptcy?" Accessed Oct. 12, 2015

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Mark T. Young & Associates
2895 Northpoint Blvd.
Hixson, TN 37343

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