Bankruptcy Won’t Erase These 4 Common Debts -- Here's Why
If you were to file for bankruptcy, you might experience an unwelcome shock in finding out this does not discharge all forms of debt. Those who carry certain debts are still held responsible for paying what they owe.
Which types of debt are not considered eligible? Read on to see the primary forms of debt that cannot be discharged in bankruptcy.
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1. Student Loans
Most types of student loans are not discharged in bankruptcy.
Why not? Student loans are considered investments in the debtor's future earning potential, said Levon L. Galstyan, CPA at Oak View Law Group. Therefore, Galstyan said it is in the public interest to ensure these loans are repaid.
2. Alimony and Child Support
Neither alimony nor child support is dischargeable debt.
"These debts are considered to be obligations to support dependents, and it is important these obligations are fulfilled in order to provide for the well-being of the dependents," Galstyan said.
3. Debts Related to Fraud or Intentional Harm
If you file for bankruptcy, you cannot discharge debt incurred through fraud or deceit.
This is also true of debts for willful or malicious injury to another person or property as well as certain fines and penalties imposed by government agencies. According to Galstyan, the reason why these debts cannot be discharged is because they are considered to be actions that involve moral turpitude and/or criminal conduct.
"It is considered fair that the debtor should be held accountable for these debts," Galstyan said.
4. Most Forms of Tax Debt
In most cases, those who owe tax debts cannot discharge these debts in bankruptcy.
"Tax debts are considered to be a priority because they are used to fund important government services," Galstyan said. "Therefore, it is in the public interest for these debts to be paid."
There are exceptions to this. In limited cases, older income tax debt may be discharged, provided several timing and filing requirements are met.
If you need help with tax debt, you may want to reach out to professionals.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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