While bankruptcy can be a great tool for many people suffering financial hardships, it isn't for everyone. More specifically, it isn't for all types of debts. There are some debts that bankruptcy can make more complicated or even may not qualify for discharge. However, that isn't to say that bankruptcy may not still be beneficial. In general, there are a few extra words of caution when pursuing bankruptcy with a few particular types.
Mortgage Debts
Although mortgage debts are one of the most common types of debts people bring into a bankruptcy, they aren't as easy as other types to manage. The reason is that it is a secured debt, meaning the lender has the right to foreclose on the property if the borrower defaults on the mortgage payment. The bankruptcy process can halt or prevent a foreclosure, but the fate of the future becomes the main point of question. In a Chapter 7 case the borrower must either be able to claim the property exempt or risk losing the property. However, a Chapter 13 bankruptcy can better protect the property while the borrower makes payments to get caught up.
The issue of second mortgages or home equity loans is a very difficult source of debt to manage in bankruptcy. In some cases, the bankruptcy court may approve for the second mortgage to be transferred into an unsecured debt and written off, leaving the borrower only responsible for repayment on the first mortgage. However, not everyone will find this to be the case and the likelihood of the court approving this transaction varies by jurisdiction. Reverse mortgages, or home equity loans, are not usually resolvable in bankruptcy without some form of repayment in Chapter 13. The only case in which the loan is likely to receive bankruptcy discharge is if the home has lost value and is worth less than is owed on the loan.
Tax Debts
Many people assume that tax debts can be discharged in bankruptcy with ease. While there are some rare cases in which these types are eligible for discharge, the general rule is that the taxpayer is fully liable for repayment. Even though tax debts are unsecured debts, they are federally held debts that hold a certain civil responsibility. Debtors are better off attempting to negotiate directly with the IRS to obtain assistance with debt repayment.
Student Loan Debts
One of the most troubling debts in recent years has become student loan debts. Now a trillion dollar industry, it is said that nearly half of all student loan borrowers have or will default on their debt payments. Like tax debts, student loan debts are rarely dischargeable in bankruptcy and borrowers are better off securing repayment agreements with the lender directly.
Mortgage Debts
Although mortgage debts are one of the most common types of debts people bring into a bankruptcy, they aren't as easy as other types to manage. The reason is that it is a secured debt, meaning the lender has the right to foreclose on the property if the borrower defaults on the mortgage payment. The bankruptcy process can halt or prevent a foreclosure, but the fate of the future becomes the main point of question. In a Chapter 7 case the borrower must either be able to claim the property exempt or risk losing the property. However, a Chapter 13 bankruptcy can better protect the property while the borrower makes payments to get caught up.
The issue of second mortgages or home equity loans is a very difficult source of debt to manage in bankruptcy. In some cases, the bankruptcy court may approve for the second mortgage to be transferred into an unsecured debt and written off, leaving the borrower only responsible for repayment on the first mortgage. However, not everyone will find this to be the case and the likelihood of the court approving this transaction varies by jurisdiction. Reverse mortgages, or home equity loans, are not usually resolvable in bankruptcy without some form of repayment in Chapter 13. The only case in which the loan is likely to receive bankruptcy discharge is if the home has lost value and is worth less than is owed on the loan.
Tax Debts
Many people assume that tax debts can be discharged in bankruptcy with ease. While there are some rare cases in which these types are eligible for discharge, the general rule is that the taxpayer is fully liable for repayment. Even though tax debts are unsecured debts, they are federally held debts that hold a certain civil responsibility. Debtors are better off attempting to negotiate directly with the IRS to obtain assistance with debt repayment.
Student Loan Debts
One of the most troubling debts in recent years has become student loan debts. Now a trillion dollar industry, it is said that nearly half of all student loan borrowers have or will default on their debt payments. Like tax debts, student loan debts are rarely dischargeable in bankruptcy and borrowers are better off securing repayment agreements with the lender directly.
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