Types of Debt to Address in Bankruptcy
Seek Guidance from Our Bankruptcy Lawyers in Naperville
There may be certain types of debt causing you financial problems that can be reduced or eliminated through bankruptcy. However, some debts are considered “non-dischargeable” and must be paid in full.
At Lynch Law, LLC., we can carefully assess your situation and determine which of your debts may be discharged in bankruptcy. From there, we can recommend whether bankruptcy is right for you. Our bankruptcy lawyers in Naperville offer comprehensive counsel and advice throughout the bankruptcy process.
Credit Card Debt
Bankruptcy is a great way to relieve credit card debt. Credit card debt is considered an unsecured debt, which means the creditor does not have a lien on your personal property.
If you file for Chapter 13 rather than Chapter 7, you will have to pay back some portion of your unsecured debts — usually less than 20% of what you owe over five years. Any unsecured debts that remain will be discharged.
Sometimes, credit card companies challenge the discharge of debt owed to them by claiming that the debt was fraudulently charged by submitting a fraudulent application or by using the card without any intent to repay the debt.
In deciding whether credit card debt was “fraudulent,” a judge will consider:
- The length of time between the charges and the bankruptcy filing
- Whether or not an attorney was consulted before you charged the debt
- The number of charges you made
- The amount of the charges
- Your financial condition at the time you charged
- Whether the charges were above your credit limit
- Whether you made multiple charges on the same day
- Whether you were employed
- Your employment prospects
- Whether there was a sudden change in your buying habits
- Whether the purchases were luxuries or necessities. Luxury goods over $500 purchased within 90 days of filing cannot be discharged in bankruptcy, nor can cash advances of more than $750 taken within 70 days of filing.
If you have run up your credit cards in the two to three months before filing for bankruptcy, you may have to pay a portion of the debt. It is best to consult with a Naperville credit card debt lawyer to better understand your rights and options.
According to recent studies, medical bills are behind in over 60% of bankruptcy filings for individuals with health insurance. In most cases, the individual suffered a short-term illness resulting in time off from work and lost wages, with insurance only covering a portion of the medical bills. In other cases, debt was incurred on behalf of a third party such as an ailing parent or child.
Too often, individuals are forced into filing for bankruptcy for the simple reason that the medical collection company is inflexible and unwilling to work out a reasonable payment plan. Instead, hospitals, doctors, and medical collection agencies often file small claims lawsuits (those less than $10,000). These collectors are usually very aggressive and may call you 20 times a day. At Lynch Law, LLC., we believe this may increase as many hospitals, doctors, and other medical-related businesses turn their delinquent accounts over to collection agencies in 30 or 60 days rather than trying to give the consumer a chance to pay the debt.
Medical bills are unsecured debt, which makes them eligible for discharge in bankruptcy. However, it is important to remember that bankruptcy will only discharge debt incurred before the date of filing. You will not be able to discharge future medical bills for eight years from the date of filing for your first bankruptcy.
A good way to handle your tax liabilities is through bankruptcy. Most tax debts can be wiped out through bankruptcy, but the process is complicated and not for the inexperienced bankruptcy attorney.
A Chapter 7 bankruptcy will probably be the better option – but only if your debts qualify for discharge and you are eligible for Chapter 7 bankruptcy. Otherwise, a Chapter 13 would be an option. In Chapter 13, late fees, interest, and penalties will stop and you can spread out the payment up to five years, with the possibility of paying only 10 cents on the dollar of the amount due.
A discharge can wipe out debts for federal income taxes in Chapter 7 of Chapter 13 bankruptcy only if all the following conditions are true:
- The taxes owed must be income taxes. Other taxes, such as payroll taxes or trust funds, can never be eliminated through bankruptcy.
- No fraud or willful evasion. If you filed an incorrect tax return or otherwise willfully attempted to evade paying taxes, filing for bankruptcy can’t help.
- The debt must be at least three years old. To eliminate a tax debt, the tax return must have been due at least three years before you filed for bankruptcy.
- You must have filed the tax return. You must have filed the return at least two years before filing for bankruptcy.
- You pass the “240-day rule.” The income tax return must have been assessed by the IRS at least 240 days before you file your bankruptcy petition. (This time limit may be extended if the IRS suspended collection activity because of an offer in compromise or a previous bankruptcy filing.)
Do you have more questions about types of debt that can be discharged through bankruptcy in Naperville? Call Lynch Law, LLC. at (630) 318-2111 now.
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