A Chapter 7 bankruptcy can be a workable solution for a person going through financial hardship. The process allows an individual to discharge debts that they cannot realistically repay and get a way to start over.
However, the law protects some individuals and institutions and does not eliminate certain debts, even after successfully filing for Chapter 7.
Spousal maintenance and child support
A person cannot discharge the duty to pay support for children or a former spouse. While an ex may take legal action against a spouse in arrears on payments, the State of Minnesota no longer assesses interest charges for late child support payments.
Back taxes and customs from the previous three years
A person who goes through bankruptcy must pay most back taxes for income taxes, Social Security and tax penalties. The Internal Revenue Service may discharge tax debts over three years old unless it received the filings late. Sometimes, a bankrupted individual may be able to get an Offer in Compromise to settle tax debts for less than the owed amount.
Debt for willful and malicious injuries
A person cannot discharge the payment of damages for an intentionally harmful action against another. Such instances include physical attacks, as well as cases of larceny, fraud and embezzlement.
Excessive credit use shortly before filing for bankruptcy
Filing for bankruptcy is not a free pass to max out credit cards and other accounts. The court reviews a filer’s activity and can assert that irresponsible or unconscionable credit use is not subject to discharge.
Bankruptcy can help a person reset their life and finances, but some limitations exist. Before filing, a person should understand how bankruptcy can and cannot help them.