According to the Bankruptcy Code, not all types of debts can be discharged. Even if one is filing under Chapter 7 which implies instant debt liquidation, some debts will stay as his financial obligations till the end of life. What are these non-dischargeable debts?
These are alimonies, child support, taxes and Student’s debts. Still, many people find the way to get rid even of alimonies and student’s loans and we are going to find out how exactly they manage to do it. Though, based on the ethical aspects we will not discuss child support and taxes.
Alimonies – is a sort of domestic support obligatory payments where the spouse makes on favor of ex-spouse after their divorce. Alimonies are, in fact, a debt that when being unpaid leads to severe consequences.
Student’s debt is a loan that is given to students to cover the cost of tuition and associated expenses.
In which way Alimonies could be discharged?
The Third Party Involvement
For example, you are the ex-husband that seeks the way to write off your alimonies as these payments are unbearable due to your bankrupt status. Sometimes ex-spouses prefer to not to have any contacts with each other at all and so the ex-wife transfer the right to receive alimonies to a third party (and later that party gives the received alimonies to the ex-wife). Not many know that in this case, alimonies become dischargeable under Chapter 7.
The misinterpretation of Alimonies in the Decree
The divorce decree is the official document that defines all aspects of post-divorce couple’s coordination and their mutual property division. This document also defines the child’s custody, Child’s support payments, and Alimonies. The thing is that very often alimonies are classified in a wrong way in such documents, so a good and experienced lawyer may easily turn alimonies into the dischargeable debt.
Filing for Chapter 13 bankruptcy
This will not bring instant alimonies forgiveness, but rather allows a debtor rearrange the system of alimonies payments to repay it in future (including the interest rate as alimonies are also a type of debt). This move is really smart as it restricts your ex-spouse from any legal actions directed on forced alimonies withdrawal. No collectors and no law companies are allowed to disturb you on alimonies question within the following 3-5 years after the bankruptcy under Chapter 13. The biggest advantage of if that the “stop alimonies” mode comes into effect immediately after your petition is filed (just like an automatic stay mode).
*Important note! Chapter 13 bankruptcy can only postpone your past alimonies payments and doesn’t affect your future obligatory payments whatsoever.
It needs to be said that risks of attempts of avoiding alimonies are significant. First, your ex-spouse may sue you before you get a bankruptcy petition approval. This is the worst scenario as consequences are terrible: your creditors are empowered to withdraw anything they need from you to compensate the debts, and after all you can face a real jail time for unpaid alimonies.
Anyway, before making any movements towards alimonies avoidance, contact the bankruptcy lawyer for the advice and make sure you do not make your situation worse.
What are the chances to get rid of Student’s debt through private bankruptcy?
Just like alimonies, Student’s debt is not a type of debt to discharge in bankruptcy. Still, it is also possible to get your Student’s loan written off, the only thing you need is to show to the court you have a really unique case of hardship.
In order to decide whether the borrower does have a right to have his debt forgiven, the U.S. bankruptcy court uses a special Brunner test.
This test is supposed to show and evaluate the following criteria:
- Whether the borrower has no means to maintain at least a minimal level of living standards, taking into account all his dependants.
- It is clear that current financial situation of the borrower is not going to change in a positive way and his living standards will not get any better during the considerable part of the Student’s debt repayment period.
(Here the borrower must show undeniable proofs of his “hopeless financial future”.
- It is obvious that the borrower made attempts to repay his Student’s debt during a certain period of time but he failed to accomplish repayment due to life circumstances.
Based on this Brunner test aspects, if the borrower meets at least two criteria, it is almost a guarantee that his Student’s debt will be forgiven.
It’s Not That Easy to pass Brunner test
Even if it may seem to you and to your bankruptcy lawyer that your financial circumstances match Brunner test requirement, there are huge chances you will not make it. Unlike the standard bankruptcy petitions, U.S. court considers every request on Student’s loan forgiveness as an exceptional, unique case. The court may count the results of a borrower’s Brunner test differently way more strictly than a borrower himself.
- It’s essential to provide the court with the proofs that the debtor and his dependants don’t have any unneeded expenditures aside from strictly necessary living expenses (food, accommodation, medical care, minimum clothing). Any frivolous (from the point of the court) expenses will give them a reason to deny your petition.
- The Bankruptcy Court must be convinced that the debtor has made everything possible to repay the Student’s debt (including finding the additional job) but was unable to do it despite maximum efforts.
There were some precedents that show that it is real to discharge Student’s debt in bankruptcy, still, the debtor must have really unique, hopeless and unbearable financial situation.
For example, the case in the court in Pennsylvania showed that borrower received his Student’s loan forgiveness because of his severe illness without any perspective to recover and earn at least the minimum income. Despite all attempts of the lender to argue that the borrower didn’t use all his administrative remedies, the U.S. bankruptcy court has approved the debt forgiveness.
When it comes to alimonies and Student’s debt, for the majority of debtors bankruptcy is not a solution. In typical bankruptcy cases it is almost impossible to make the U.S. court write such obligations off.
In order to get rid of alimonies, it is reasonable to ask your lawyer to find possible flaws in the divorce decree, so you may be legally freed from paying money to your ex-spouse.
When it comes to children’s alimonies – it is impossible to cancel such payments at all, so you better don’t waste time and resources in attempts to find legal solutions.
The bottom line in Student’s debt forgiveness is that you may receive the discharge, but no tricks or lawyer’s arguments will work unless you are in a really hopeless and devastating financial situation. The key word is “hopeless” as the court must see not only your current hardship but also the total absence of any future financial perspectives for you (due to serious disease, disability, etc.)