When you file for bankruptcy, one of the things that will happen is that your debt will be discharged. That means that you no longer owe a part or all of your debt since the court stepped in on your behalf. While this is a good thing, debt discharge can be a tricky part of bankruptcy if you are not careful. Here is what you need to know before filing.
How Debt Discharge Works in Bankruptcy
No matter which type of bankruptcy you file, you can have your debts discharged. The court will tell you which debts you are no longer responsible for paying. In Chapter 13, it’s the debts you cannot repay or that remain after the repayment plan. In Chapter 7, it could be all of your debts. It all depends on the situation and a few factors.
You Don’t Pay Taxes on Bankruptcy Discharged Debt
When you have debts discharged, you would still pay taxes on them if done in a process that is not bankruptcy. However, debt discharged by bankruptcy is exempt from taxes. This is a big advantage as it means that the money you owe is significantly reduced, and it can be much easier to find the means to manage bankruptcy.
Not All Debts Are Forgivable
While Chapter 7 bankruptcy forgives “most” of your debts, there are some debts that cannot be discharged. Some examples of this are:
- Child support payments
- Alimony
- Some taxes
- Court case settlements
Knowing which debts are forgivable and which are not is important to your bankruptcy case. You need to understand your possible debt load after the case to determine how to proceed at the beginning. This can affect which type of bankruptcy you file and how you handle your assets during and after the case.
You Must Declare Debts to Have Them Discharged
In any case, you need to declare debts in the bankruptcy case to have them discharged. The courts cannot discharge debts that they don’t know you have. In some cases, it may be possible to have an undeclared debt discharged in a bankruptcy case, but courts are not likely to help with these debts. Depending on how strict the court chooses to be, it may not discharge undeclared debts, regardless of what the circumstances are, making it essential that your debts are declared and handled properly.
Work With a Bankruptcy Attorney To Avoid Problems
Working with a bankruptcy attorney is the best way to avoid problems with undeclared debts or confusion over the bankruptcy process. The attorneys at Kain + Henehan work with clients like you every day to set up, file, and manage bankruptcy cases to help them get their financial lives back on track. Contact Kain + Henehan by calling (612) 438-8006 or completing the online form to discuss your case with a bankruptcy attorney.
