Obligatory Debts and Bankruptcy
There are all different kinds of debts and all of them are affected differently when you file for bankruptcy. A dischargeable or non-obligatory debt can be eliminated in bankruptcy, which means you’ll no longer be legally responsible for paying it and the creditor will be barred from attempting to collect on it.
A non-dischargeable or obligatory debt, on the other hand, is one that is not eliminated in bankruptcy. If you have an obligatory debt it will not be directly affected by bankruptcy. Bankruptcy could free up money to help you pay the obligatory debt, but you should not expect it to be reduced or eliminated when you file. And if the bulk of your debt load is obligatory, bankruptcy might do very little to help ease your financial burden.
It’s possible for a person filing for Chapter 7 bankruptcy – the type designed to offer debt forgiveness and create for the filer a blank financial slate – to walk away from the experience with just as much debt as they had when they entered bankruptcy if the majority of their debts were obligatory.
What Types of Debts are Obligatory?
Many people assume the bulk of their debts would be dischargeable if they filed for bankruptcy, but the truth is there are quite a few different types of debts that are obligatory. Some of the most ordinary debts held by most people are not eliminated by bankruptcy. These include:
- Student loans
- Tax debt at the federal, state, and local levels
- Child or spousal support
- Any debt tied to a court order
- Fraudulent debt
For a list of debts that are typically dischargeable, check out this information provided by the US bankruptcy court.
What Can You Do If You’re Struggling with Obligatory Debt?
So what can you do if the bulk of your debt load is obligatory and bankruptcy won’t offer the relief you were hoping to receive?
Start by evaluating your specific debts. Even though the list of debts above are obligatory, each one is still different and should be handled differently if you are struggling financially.
For instance, student loan debt might be negotiable with the lender. There might be programs for which you are eligible that can help alleviate some of the burden of student loans. Sometimes the job you take affects your student loan and if you currently have no job at all, you might be able to defer payments that are due until a later date.
If you’re facing a tax debt, it might be possible to negotiate a more affordable settlement with the IRS. Sometimes a payment plan might be an option so you’ll be able to spread out the amount you owe over time without penalties instead of paying it in one lump sum.
Negotiating payment plans and other arrangements can be challenging. Remember, even if a debt collector is willing to work with you, they still have only one primary goal: to get the money they are owed. It can help to have a financial professional negotiate on your behalf to ensure that any arrangement you enter into is really in your best interest.
A final option you might have if you are dealing with obligatory debts is to file for Chapter 13 instead of Chapter 7. Chapter 13 does not offer automatic debt forgiveness and instead puts you on a court-overseen payment plan that lasts for several years. At the end of that time, some of your debts might be forgiven, but even if an obligatory debt is not forgiven you might be able to include it in the payment plan, making it easier to afford everything you owe.
If you have questions about obligatory debts or you’re trying to find a solution for dealing with financial challenges, we can help. Contact the Law Office of Robert M. Geller at (813) 254-5696 to schedule a free bankruptcy lawyer consultation.