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Before you consider filing for bankruptcy a consumer should consider all of their options. Obtaining a copy of their credit report will help to discover any and all debts that they owe. You must list all of your assets and all of your liabilities in your bankruptcy petition.  But not all debts can be “discharged” or forgiven in bankruptcy.  

This article will discuss and answer:

  • SECURED VS. UNSECURED DEBT
  • DEBTS THAT CANNOT BE DISCHARGED IN BANKRUPTCY
  • OTHER DEBTS THAT CANNOT BE DISCHARGED
  • WHAT DEBTS WILL CREDITORS CHALLENGE THE DISCHARGEABILITY OF?

What type of debt cannot be discharged in an Illinois bankruptcy?

Before you consider filing for bankruptcy a consumer should consider all of their options. Obtaining a copy of their credit report will help to discover any and all debts that they owe. You must list all of your assets and all of your liabilities in your bankruptcy petition.  But not all debts can be “discharged” or forgiven in bankruptcy.  

This article will discuss and answer:

  • SECURED VS. UNSECURED DEBT
  • DEBTS THAT CANNOT BE DISCHARGED IN BANKRUPTCY
  • OTHER DEBTS THAT CANNOT BE DISCHARGED
  • WHAT DEBTS WILL CREDITORS CHALLENGE THE DISCHARGEABILITY OF?

WHAT DEBT IS SECURED AND WHAT DEBT IS UNSECURED?

First, the consumer must determine whether the debt is “secured” or “unsecured”.  A secured debt is one in which there is “collateral” or property of value that must be returned if the debt is not paid.  Examples of secured debts include:  real estate, motor vehicles and other consumer goods where a “lien” is placed upon the item of property.  Secured debts CANNOT be discharged in bankruptcy, unless you are willing to return the item of personal property that is attached to the debt.

Unsecured debts, which comprise most of the debts listed by a debtor, are those debts where there is no security or lien. Examples of unsecured debts include credit cards and medical bills.  Unsecured debt CAN BE DISCHARGED in bankruptcy.  

The bankruptcy code provides a specific list of the types of debt that CANNOT be discharged.  

DEBTS THAT CANNOT BE DISCHARGED IN BANKRUPTCY INCLUDE:

--back child support, alimony(maintenance) obligations and other debts dedicated to family support;

--debts for personal injury or death caused by driving while intoxicated

--student loans, unless it would be an undue hardship for you to repay

--fines and penalties for violating the law, including traffic tickets and  

 criminal restitution.

--recent income tax debts (within 3 years) and other tax debts

--debts you forgot to list in your bankruptcy papers, unless the creditor  

 Learns of your bankruptcy case.

ARE THERE ANY OTHER DEBTS THAT CANNOT BE DISCHARGED?

There are also some debts that a creditor can challenge during the bankruptcy proceedings.  There are look back time periods relative to when the debt was incurred.    Debtors must disclose certain transactions that have occurred within 30, 60 or 90 days of filing for bankruptcy.  There is also one year look back periods on certain items.  A debtor cannot “transfer” property to another for the purpose of avoiding listing it as an asset in the bankruptcy proceeding.  A person who contemplates filing for bankruptcy should carefully review all their debts and transactions from the prior year to make sure they are not forced to turnover assets to creditors.  

WHAT DEBTS WILL CREDITORS CHALLENGE THE DISCHARGEABILITY OF?

-debts you incurred on the basis of fraud;

-credit purchases of $1,150. or more for luxury goods or services made within 60 days of filing;

-loans or cash advances of $1,150. or more taken within 60 days of filing;

-debts from willful and malicious injury to another person or another person’s property;

-debts from embezzlement, larceny or breach of trust; and

-debts you owe under a divorce decree or settlement UNLESS after a bankruptcy you would still not be able to afford to pay them or the benefit, you would receive by the discharge outweighs any detriment to your ex-spouse (who would have to pay them if you discharge them in bankruptcy). (IL BK Law 2002-2017 – Illinoisbankruptcy.com)

Debtors need to be very careful when filing for bankruptcy to make sure that they accomplish the goal of becoming debt free and starting fresh.  If the debt that you are attempting to avoid is not dischargeable in bankruptcy you may have to look at other options.   Always consult with an experienced attorney before determining whether filing bankruptcy is right for you.

Posted 
March 30, 2021
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