Debts that will not be erased by Bankruptcy

It is important to know that when you file for bankruptcy, not all debts will be erased. Student loan debt, for example, is typically not forgiven when you file for bankruptcy (although there are exceptions). Below find a list of some of the other debts, in addition to student loans, that will not be erased by bankruptcy. Due to the student loan exceptions hinted at earlier, more detail on student loan debt and bankruptcy will follow.

These are some of the debts that will not be erased with bankruptcy:

• If you owe money for child support
• If you owe money for alimony
• Debts that you did not list on your bankruptcy petition
• If you knowingly gave false information to a creditor and received loans based on the false information
• While bankruptcy will erase your obligation to pay any additional money if your property is sold by the creditor, mortgages and other legal claims on somebody’s property which are unpaid in the bankruptcy case will not be erased.
• If you have debts that resulted from "willful and malicious" harm
• Student loans owed to a school or government body, detailed below

Student Loans and Bankruptcy: Two Student Loan Exceptions

Previously, law had allowed student loans to be discharged with bankruptcy once they had been in pay status for 7 years. This law was changed in the fall of 1998. Today, the general rule is that student loans are not discharged in bankruptcy except for two exceptions in 11 U.S.C. sec. 523(a)(8).

The first exception is that the student loan can be discharged if it is not "insured or guaranteed by a governmental unit" and also not "made under any program funded in whole or in part by a governmental unit or nonprofit institution."

The second exception is that the student loan can be discharged if paying the loan will "impose an undue hardship on the debtor and the debtor's dependents." Proving hardship would require showing that you can not provide a minimum standard of living for yourself and your dependents if you are forced to repay your student loan.

It can be difficult to erase your student loans under the undue hardship standard, but it is certainly possible. Facts on your particular case and local court decisions are all factors on determining the outcome. Even if your loan fits into an exception, discharge may not be automatic and you may need to file an adversary proceeding in the bankruptcy court to get a court order which affirms the debt is in fact dischargeable.

Remember that student loans are contracts like any other loan and are therefore at risk of fraud, and are also not enforceable when the school has closed prior to the student completing his/her education. Just like with other contracts, is possible to contest the enforceability of the loan.