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Which debts are not discharged in bankruptcy?

On Behalf of | Mar 23, 2023 | Bankruptcy |

Bankruptcy is an advantageous tool for many Americans, as it can help discharge many oppressive debts and many types of debt. From personal loans to credit card debt, bankruptcy can help you eliminate outstanding balances across several sources.

That said, bankruptcy does not eliminate all debts. Congress has deemed some types of debt ineligible for discharge for public policy reasons. Bankrate explores the top three types of debt you cannot clear through bankruptcy.

Tax debt

Congress will not allow the discharge of most tax debts in bankruptcy. However, it does make an exception for income taxes associated with a return you filed at least three years before the date you filed for bankruptcy. If you owe taxes on a return that is at least three years old, the bankruptcy courts may discharge any remaining debt. That said, it will not do the same for any property taxes or property liens, regardless of how old they are.

Student loans

In most cases, you cannot discharge student loans through bankruptcy. That said, Congress does allow for two limited exceptions. For instance, if you can prove that you live with a disability that makes it impossible for you to repay your loans, it may allow the bankruptcy courts to discharge your loans. Likewise, if you can prove that repaying your loans causes undue hardship, you may be able to convince the bankruptcy courts to discharge them.

Bankruptcy is a great tool for achieving financial freedom, but it does not erase all debts. If you struggle with more than credit card or personal loan debt, it may be worth your while to explore more comprehensive debt relief options.