A Law Career

3 Things You Need To Know Before You File For Bankruptcy

by Ruby Mckinney

For a lot of people, debt can be suffocating - especially those who have a tremendous amount of it. Whenever you feel like you have just too much debt to pay off, you have the option of filing for bankruptcy. However, bankruptcy is not a cure-all solution for your debt problems. Here are three things you need to know before you file for bankruptcy.

1. You will need to go through credit counseling before you can file.

In an attempt to prevent people from abusing the bankruptcy system, it is now a requirement for everyone filing that they must go through credit counseling beforehand. The main purpose of the credit counseling is to try to find a way for you to actually pay off your debts instead of going through bankruptcy. Of course, you don't have to agree with any repayment plan the credit counselors come up with, but you will have to defend your reasoning in bankruptcy court.

You have to complete the credit counseling within the 180 days preceding filing for bankruptcy. Then you must file your certificate of completion within 15 days after filing. It is important to know that you can't just get the credit counseling from anyone. The credit counseling agency must be approved by the U.S. Trustee's office, otherwise it doesn't fulfill the requirement.

2. Not all debts can be discharged in bankruptcy.

A common misconception is that you can discharge all of your debts in bankruptcy. This is not necessarily true. For instance, if you have tax debt, it won't be discharged when you file for bankruptcy. Other debts that you can't discharge in bankruptcy include:

  • Child support
  • Alimony
  • Government fines and penalties
  • Court fees
  • Debts obtained by fraud
  • Student loans (in most cases)

That list isn't exhaustive. There are other debts you can't discharge in bankruptcy, but the list includes the most common debts that a filer may have that can't be discharged.

Something worth noting is that it is possible to have your student loan debt discharged, but it is very difficult. You have to prove that you tried to pay the debt for a considerable amount of time (i.e. didn't just keep it in deferment or forbearance until you filed for bankruptcy), that repaying the student loans would put an undue hardship on you and your family, and that hardship would continue for a long period of time if you were made to repay the debt. As you can see, it's not easy to get out of your student loan debt.

3. A bankruptcy filing will follow you for several years.

While filing for bankruptcy will get rid of a lot of your debt, it will haunt your credit score for 7-10 years. Credit reporting agencies are required to remove it from your report at the 10-year mark, but a lot of them will take it off once seven years have passed. 

It is still possible to get loans and credit extended to you, even with the bankruptcy, but lenders will likely impose a high interest rate on it. It can be good to get some type of credit product after a bankruptcy so you can start rebuilding your credit score. However, you should use credit cards and loans wisely. Otherwise, you could end up in the same financial situation you were in before your bankruptcy filing.

Contact a local lawyer, like Lynn Jackson Shultz & Lebrun PC, if you have further questions.