Bankruptcy Helps with Debt Problems Even without Writing off Every Debt

Posted by Kevin on September 14, 2019 under Bankruptcy Blog | Comments are off for this article

Neglecting Bankruptcy as an Option

If you have a debt that you have heard cannot be discharged (legally written off), you may not be seriously considering bankruptcy as an option. You probably have not seen a bankruptcy attorney. That could well be a mistake.

Getting the Law Right

But whether or not a specific debt can be discharged, you would be wise to get legal advice about it, for the following 4 reasons:

1. Some debts that can’t be discharged now perhaps can be in the future. Almost all income taxes can be discharged after a series of conditions have been met, which mostly just involve the passage of enough time. So your attorney can create a game plan for you using the tax timing rules to discharge as much tax debt as possible. Timing can also be important with student loans, especially if you have a worsening medical condition or are getting close to retirement age, making for a better argument of “undue hardship.”

2. Even if you can’t discharge a particular debt, bankruptcy can permanently solve an aggressive collection problem.  Often your biggest problem is how aggressively a debt is being collected. For example, you may want to pay your back child support (which is not dischargeable) but the state support enforcement agency is threatening to suspend your driver’s and/or occupational license.  The filing of a bankruptcy triggers the automatic stay which will stop collection efforts during the term of the bankruptcy or until the Court vacates the stay for just cause.  A Chapter 13 case then will allow you the time (3 to 5 years) to catch up on the back support payments based on your budget.

3. Bankruptcy can stop the adding of interest, penalties, and other costs, allowing you to pay off a debt much faster. Unpaid income taxes and certain other kinds of debts take more time to pay off because a part of each payment goes to the ongoing interest and penalties. Certain tax penalties in particular can be large. Most of these additions to the debt are stopped by a Chapter 13 filing, allowing you to become debt-free sooner and by paying less money.

4. Bankruptcy allows you to focus on paying off the debt(s) that you can’t discharge by discharging those you can. You may have a debt or two that can’t be discharged, but you likely also owe a set of debts that can be. Even if bankruptcy can’t solve your entire debt problem by simply discharging all you debts, as long as you can discharge most of your debts that would likely make your remaining debt problem much more manageable.

Conclusion

So don’t let the fact that you’ve heard that you have a debt or two that can’t be discharged in bankruptcy stop you from getting legal advice about it. Your financial life could well still be greatly improved through one of the bankruptcy options.