How Bankruptcy Can Really Help Even if It Doesn’t Write Off Every Debt

Here’s how bankruptcy actually works, and works well, even when a significant debt can’t be written off.

My last blog post listed six reasons why it’s worth looking into bankruptcy even if you can’t discharge one or more of your most important debts. Today here are concrete examples of the first three on that list.

Some Debts Can Be Unexpectedly Discharged, Either Now or Soon

The first two reasons we’ll cover with the first example. The reasons are: first, sometime debts which you might think can’t be discharged actually can be, and second, some debts that can’t be discharged now may be able to be in the near future.

Let’s say you currently owe $8,000 in federal income tax for the 2011 tax year. You filed that tax return on April 15, 2012.

You’ve heard that the $8,000 tax debt cannot be discharged in bankruptcy.

You’d be right about that… but only for the moment. Because under these facts that 2011 tax debt could very likely be discharged through either a Chapter 7 or 13 bankruptcy case filed AFTER April 15, 2015 (3 years after its tax return filing deadline).

So instead of being in a tough situation, you would avoid paying all or most of that $8,000—plus lots of additional interest and penalties that you would have been required to pay.

Bankruptcy Solving an Aggressive Collection Problem

Even if you can’t discharge a debt, bankruptcy can do often permanently solve the aggressive collection of that debt.

For example, if you are behind on your child support payments, your ex-spouse or local support enforcement agency can take some very strong collection measures, including suspending your driver’s license, and even suspending your occupational and professional licenses so that you are cut off from making a living.

A Chapter 13 filing would stop your ex-spouse/support enforcement from suspending your license, and would give you a mechanism for catching up on the support arrearage.

So instead of being behind on your support and deathly scared about losing your means of earning a living, within a few days you could be on a financially doable path to being caught up on your support. And then after the three to five years that Chapter 13 plans take to complete you would be current on the support, and would be largely debt free.