With so many problems in the economy, many people are drowning in credit card bills and other kinds of financial problems with seemingly no way out.
While it should never be taken lightly, declaring Chapter 7 bankruptcy can provide a way out and a fresh financial start for those who are simply overwhelmed by their debt.
The goal of Chapter 7 bankruptcy is to completely eliminate your debt instead of creating a repayment plan like you would in Chapter 13 bankruptcy.
With Chapter 7, you are supposed to surrender any non-exempt assets you have in order to pay off as much of your financial obligations as possible.
In practice, however, the vast majority of people who declare chapter 7 don't have many assets to speak of, and they are simply trying to eliminate their debts altogether.
Your most important assets, namely your house, car, and certain household furnishings, are usually protected up to a certain amount.
Obviously, you're not going to be able to hold on to a Rolls-Royce while sticking it to your creditors, but most people are simply trying to hang onto their homes and transportation while achieving some kind of relief from their debts.
Unfortunately, not every kind of financial obligation will disappear when you declare bankruptcy.
There are a number of nondischargeable debts you should be aware of.
If you are really concerned with getting rid of unsecured debts such as credit card bills or medical payments, then you have a good chance of getting rid of these problems.
If your main concern has to do with student loans, unpaid income taxes, child support, or criminal fees, however, you will be unlikely to get rid of these even if you declare chapter 7 bankruptcy.
A lot of this has to do with common sense, if you think about it.
Congress has tried to construct the bankruptcy laws in such a way as to give relief to citizens who need it while not allowing people to get away with unpaid criminal fees or child support.
But what about student loans and taxes? Well, those are pretty simple to understand as well.
You see, Congress wanted to encourage banks to lend to students so more people could go to college regardless of financial circumstances.
Banks would be reluctant to make a loan if it could be wiped away in a future bankruptcy proceeding, so the law makes it very difficult to get a student loan.
You have to prove extreme hardship above and beyond what most people are facing when they declare bankruptcy, and you have to demonstrate that your circumstances are unlikely to change in the near future.
When it comes to taxes, you shouldn't be surprised that it is difficult to get rid of these.
After all, we all know that taxes, like death, our unavoidable, and the government always wants to get its share.
You should speak to a lawyer about your situation, because there are certain cases in which your taxes can be done away with.
If a certain number of years have passed since you incurred the taxes, then your taxes may indeed be discharged.
There are many complex rules, however, so be careful.
For example, if the IRS has already begun proceedings to collect from you, then your taxes will probably not be discharged.
Also, if you never filed your tax return to begin with, then the clock never began ticking so it doesn't really matter how many years have passed.