If you’ve found yourself in a lot of debt and are unable to pay it off, bankruptcy might seem like the best solution. There are clear negative consequences to going bankrupt – your credit score will be severely damaged and you may have to give up non-essential assets to help pay off your debts. However, in return, your debts will be wiped. 

Well, most of your debts anyway. To read more about different types of debt and ways to overcome debt, head over to the Ultimate Guide To Money + Finance. Unfortunately, declaring bankruptcy cannot wipe all kinds of debt. This is important to consider if you’re in financial trouble – there’s no point in filing for bankruptcy if the majority of your debts aren’t going to be affected as it could just cause further financial harm. Below is information on exactly which debts are eliminated by going bankrupt.

Which debts are wiped?

Bankruptcy can help to erase a number of debts that are classed as ‘dischargeable’, providing there are no fraudulent connections. A few of the debts that can be wiped by declaring bankruptcy include:

  • Personal loans
  • Business debts
  • Credit card bills
  • Medical bills
  • Rent arrears
  • Utility bill arrears
  • Repossession deficiency balances
  • Collection agency fees
  • Attorney fees
  • Certain tax debts

Which debts aren’t wiped?

If you choose to opt for chapter 7 bankruptcy, there are certain debts that will not be wiped. Such debts are classed as ‘non-dischargeable’. These include:

  • Federal student loans
  • Various tax debts
  • Child support arrears
  • Fines and penalties
  • Loans taken from your retirement plan
  • Debts as a result of criminal behaviour
  • Debts incurred after filing for bankruptcy

A bankruptcy consultant may be able offer advice on exactly which debts are non-dischargeable if you are unsure. This could be useful when it comes to tax debts, which may not count depending on the circumstance. 

Is declaring bankruptcy the right option for me?

Bankruptcy is not the only way to deal with large debts. With certain debts such as tax-related debts, you may be able to hire a tax attorney to help eliminate these debts. When it comes to fines, you may also be able to hire legal support to argue them in court.

In cases where you may owe lots of different debts, a consolidation loan might allow you to manage your debts more easily. You may also be able to refinance individuals loans to reduce interest rates. A debt settlement plan may also be an option – this involves hiring a debt expert to negotiate with creditors and lower your debts.

While declaring bankruptcy is the fastest way to deal with debts it is not always the most suitable option. If your debts aren’t severe enough and you have the means to pay them off, your bankruptcy application may be refused. Consequently, bankruptcy should only be treated as a last resort when all other options have been exhausted. If you own assets that are of value, you should weigh up the fact that you may lose these assets during the bankruptcy process. That said, it is unlikely that you will lose your home or a vehicle that you depend on for your livelihood. 

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