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What debts are exempt from Chapter 7 protections?

On Behalf of | Nov 8, 2021 | Chapter 7 Bankruptcy |

Illinois consumers who pass the means test for Chapter 7 bankruptcy may feel some much-needed relief. Excessive debt and other financial obligations could suffocate a person’s life. Going through Chapter 7 liquidation bankruptcy allows someone to liquidate specific assets to cover some debts and see other debts discharged. Some may worry about seeing certain property liquidated, but they might not realize some exemptions exist. They also may not realize some debts won’t go away.

Chapter 7 bankruptcy debt exemptions

The law provides relief for those who meet the criteria for Chapter 7 bankruptcy, but statutes do not support a blanket eradication of all debt. Anyone with back taxes should expect to pay those obligations. Some exceptions exist for discharging tax debt, but they are narrow.

Divorced individuals may find that child and spousal support create burdens. Seeking modifications to the awards might be necessary since bankruptcy does not affect support payments. The same is mostly true with student loan debt, although the court might consider a discharge for those facing extreme hardships.

Other exempt obligations under Chapter 7

Several other forms of debt are not eligible for Chapter 7 bankruptcy exemptions. Understandably, the courts are not likely to discharge new credit card debt amassed after bankruptcy commenced. Home mortgages and car loans won’t undergo discharges, but the court may block foreclosures and repossessions. Continuing to make payments would likely be a requirement to keep such property.

Some people could owe significant legal judgments derived from drunk driving lawsuits or criminal activity. Bankruptcy courts won’t free individuals from these obligations.