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Debts Not Covered in a Bankruptcy

Not all debts are covered in a bankruptcy.

A common question in our office is which debts are covered by a bankruptcy proceeding and which are not. There are definitely some debts that are unable to be discharged in and filing.

In this article we will cover the most common debts not covered by bankruptcy and the exceptions to the rule.

#1. Student Loans

If you have taken loans for college, you are responsible for paying them. This includes all types of student loans including:

• federal student loans
• tuition assistance loans
• private lender loans
• direct school loans

The exceptions for student loans are that the borrower has to prove they will never work again due to a permanent, complete disability. Be aware that the standard to prove this is very high and unusual to acquire.

#2. Secured Debt

If you have signed loan papers with an item of value securing the loan, then the lender has the court backing to own that secured item if you default on the loan. This would be a house, car, jewelry or anything else. If you default on the loan, you must give up that item.

There really are no exceptions (although there are exemptions) for secured items. The only good thing is that once you have given up the secured item the loan is canceled whether or not that item’s value is commiserate with the loan value.

#3 Child Support and Alimony

Neither child support nor alimony can be cleared by bankruptcy. This is a moral obligation and cannot be waived by the courts. (The court system has other means to determine the need for adjustments in child support or alimony.)

#4. Ex-Spouse Legal Fees and Credit Card Debt

Often, in a divorce case one spouse will agree to pay legal fees, credit card debt or other outstanding debt for the ex-spouse. These debts are not cleared in a bankruptcy case. It would be too easy for a couple to plan this all out beforehand just to remove debt!

#5. Restitution

If you have been ordered in a previous court case to pay restitution to another for financial loss or personal injury (or any other matter) you may not discharge this debt by bankruptcy.

#6. Damages Due to Intoxication or Malicious Conduct

If you have been found guilty of injuries caused by operating a vehicle while under the influence, or of causing injury/damage by malicious conduct you will be unable to discharge this debt in a bankruptcy court.

#7. Income Tax Liability

Although there is some room for discharging an income tax liability, the case brought to the court for such an action must be very specific and the courts are not normally known to grant this discharge.

Of course, this information about debt not covered in a bankruptcy is in general terms and designed to help you begin to understand your options. Bankruptcy is a very serious and life affecting action that should only be considered with the help of a competent and experienced attorney. Contact us today for a consultation.

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New Mexico Financial Law, PC

320 Gold Ave, SW
Suite 1401
Albuquerque, NM 87102

(505) 503-1637

IMPORTANT: Free consultations only apply for Chapter 7 and Chapter 13 bankruptcy, or similar.