People file for bankruptcy for one reason—to wipe out unwanted debt and get a fresh start. But some debts are harder to get rid of than others. We asked our readers about the kinds of debts they were able to have wiped out, or “discharged,” in their Chapter 7 bankruptcy cases.
Not surprisingly, our survey showed that some debts were more difficult than others to get discharged in a Chapter 7 bankruptcy. Here’s what our readers told us about their experience with the most common debts in this group: back taxes and student loans.
Tax Debts: Mixed Results in Bankruptcy
Many people think that you can’t wipe out tax debts in bankruptcy. That’s not entirely true, but getting tax debt discharged isn’t easy. You have to meet tough requirements to be able to get all or part of your unpaid back income taxes wiped out. (For the details, see our article on getting rid of tax debts in bankruptcy.)
More than half of our readers (61%) who had tax debt when they filed for Chapter 7 bankruptcy actually told us they got at least some relief for the tax debt (either a full or partial discharge). But the amounts were not that big. More than one in three readers discharged $1,000 or less in back taxes.
This level of relief reported by our readers doesn’t mean, however, that most people who owe back taxes can expect the same result. The rules are complicated, so it’s a good idea to explore your options with a knowledgeable attorney (and maybe an accountant) as soon as possible. It’s likely that many people don’t bother filing for bankruptcy because they believe that their tax debt won’t qualify for a discharge.
Student Loans: Hard to Wipe Out
It’s even harder to get rid of debts for student loans in bankruptcy. Your student loans can’t qualify for a discharge unless you file a separate lawsuit known as an adversary proceeding and prove that you meet the strict requirements for “undue hardship.” (See our article about wiping out student loan debt for more details.)
Most of our readers (85%) with unpaid student loans did not get any relief for their debts, but it’s likely that many of these folks did not file adversary proceedings. According to a study from 2011, 38% of those who file a student loan adversary proceeding to prove undue hardship get a full or partial discharge of their student loans.
Some courts have been more willing to grant a discharge for student loan debts, and not just for those who suffer from a disability or whose divorce diminished family income. Here again, it would be good to talk to a local attorney about your situation.
Other Debts in Bankruptcy
Other kinds of debts that qualify for a discharge in bankruptcy, like credit card and medical bills, are much more likely to be wiped out. (For details, see our article on readers' results with these debts.)
Finally, there are some debts don’t qualify for a discharge, at least in some circumstances, such as mortgages, car loans, and child or spousal support payments. (For more information, see our article on debts you can't wipe out in bankruptcy.)