Can I Get Rid of Student Loans or Tax Debts With a Bankruptcy?

Bankruptcy is a tool designed to help those in serious financial trouble get a fresh start. Bankruptcy protection can eliminate many debts permanently, but there are a few types of debt that may not be easy to erase. Student loans and taxes may be difficult to eliminate in bankruptcy, but it is possible to do so in some cases.

Discharged Debts

When you file for chapter 7 bankruptcy, you get to benefit from the liquidation form of bankruptcy. The bankruptcy court eliminates or forgives most of your debts. Some debts are easily discharged such as credit card debt or auto loans, but student loans or a federal tax debt could remain.

Student Loan Discharge

To get your student loans discharged, you will have to prove that paying them creates an undue hardship on you. You have to file a special motion with the court to have this considered. You then have to meet with the judge privately and discuss your financial hardship. Paying back these loans has to create a large amount of financial stress for you. Typically, you have to be disabled or be prevented from working in some other way before the judge will consider this.

Tax Discharge

Getting taxes discharged in bankruptcy is not always possible. If the Internal Revenue Service has already placed a lien on your property, you will not be able to get out of paying the taxes. If the tax debt is unsecured, you could potentially get the taxes discharged. To get tax debt discharged, it has to be on non-priority taxes. This means that the taxes have to be from a tax return that was not filed in the last three years.

Offer in Compromise

You can also work with the IRS to try to get an offer-in-compromise accepted. This is a program that the IRS offers that allows some people to pay less than they owe in taxes. With this option, you may be able to pay less than what you owe but not get the entire amount of your taxes forgiven. You will have to prove that collecting the tax imposes a serious financial hardship on you to qualify for this program.

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Does Being Garnished Affect Your Credit?

Garnishment is a process creditors can use in certain circumstances to forcibly collect money you owe for part-due debts. It involves compelling your employer to withhold part of your earnings or your bank to freeze your account balances to pay toward a debt. Although a garnishment will not affect your credit by itself, several factors surrounding a wage or bank garnishment can damage creditworthiness.

Late Payment Reports

Creditors typically will not pursue garnishment immediately after you miss a debt payment. Instead, they use in-house collectors or a third-party collection agency to contact you in an effort to help bring your account current. However, if your account becomes more than 30 days delinquent, a creditor can report the delinquent status to credit bureaus. Past-due account reports can damage your credit score and may impair your ability to obtain future loans and credit cards.

Civil Judgment

Before a creditor can execute wage or bank account garnishment, it must typically file a lawsuit against you for the unpaid debt you owe. This often occurs only after the creditor has made repeated attempts to compel you to bring your account current. If you cannot successfully defend yourself against a lawsuit for unpaid debt -- for example, by providing the court proof that you have paid your account balance -- the court will enter a judgment against you. Civil judgments appear on your credit reports and can sharply reduce your credit score.

Indirect Effects

A wage or bank garnishment executed after a civil judgment can have indirect effects on your creditworthiness. Because you have little control over a judgment creditor's ability to take your wages or bank account balances, a garnishment can reduce the amount of money you have available to pay other creditors. This may cause you to fall behind on other debt obligations, leading to additional delinquency reports and possible legal action initiated by other creditors.

Avoiding Garnishment

Simple strategies can help you avoid garnishment and the effects that this practice can have on your credit. Contact creditors before your accounts become sufficiently delinquent to warrant delinquency reports or legal action. Your creditors may reduce your interest rates or allow you to postpone payments to help you bring your accounts current. If your creditors will not work with you, contact a credit counseling service. Credit counselors can negotiate with creditors on your behalf to establish more favorable repayment terms. Also, cut down on discretionary spending to free more of your income for debt repayment.

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South Carolina Laws Regarding Liens for Credit Card Debt

Creditors attempting to collect a debt are regulated nationwide by the federal laws in the Fair Debt Collection Practices Act (FDPCA). Creditors wishing to file liens and judgments against consumers must adhere to the FDPCA and additional laws set forth by the state of South Carolina. The FDPCA covers consumer debt but not debt incurred for business purposes. South Carolina has enacted laws that provide additional protection for consumers and legal remedies against creditors who harass consumers.

Judgments and Liens by Creditors

According to Title 37 of the South Carolina consumer protection code, creditors have the legal right to file a lien against the personal property of a consumer who does not pay an owed credit card debt. Creditors must give at least 20 days notice before filing in court for a judgment against your home or other personal property. However, the cost of filing these types of cases is high. Unless you owe a large amount, it is unlikely the creditor will take this action.

Garnishment of Wages

In some states creditors owed a debt have a right to garnish wages. This tactic is less expensive than filing a judgment and provides a quicker remedy to the creditor. South Carolina law prohibits creditors from garnishing wages. However, it is possible to live in South Carolina and still have a wage garnishment if the company you work for is headquartered in a state that allows garnishments.

Protection Against Harassment

Title 37 provides legal remedies for consumers who have been harassed by debt collectors. In South Carolina, a debt collector is not the original lender. A debt collector is an agency hired by the original lender to collect a debt.

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How to Get Out of a Deceptive Home Loan

Deceptive home loan practices, such as tacking on exorbitant fees without adequate disclosure, often cause people to accept mortgage loans that they can't afford. As a result, according to "The New York Times," certain people default on the loans and lose their houses to foreclosure. Deceptive home-loan practices can be hard to prove. Mortgage companies usually make disclosures as required by law, but certain consumers may feel later that they were duped because they didn't fully understand the terms of the agreement. For example, consumers taking on adjustable-rate mortgages may fail to realize how significantly rates may increase once the rate adjusts. Getting out of a deceptive home loan usually means refinancing.

Instructions

1

Evaluate your home mortgage with the help of a government-certified housing counselor from the U.S. Department of Housing and Urban Development. Counselors are located nationwide. Contact your bank or credit union to locate a counselor near you. Take a copy of your mortgage to the meeting with the counselor.

2

Ask the counselor to review the terms of your loan for signs of deceptive home-loan practices. For example, tell the counselor if the agent for the mortgage company convinced you that your rate would not change for five years but it changed significantly after just one year. Make a list of all alleged deceptive home-loan practices based on your review with the counselor.

3

Set a separate appointment to contact the mortgage company in a three-way call with the Department of Housing and Urban Development counselor on the line. Outline the deceptive home practices and demand that the mortgage company modify or refinance the mortgage because of the practices. Follow up your request in writing. Loan modification allows mortgage companies to change any or all terms of a loan to make it more affordable.

4

Apply, officially, for loan modification with the help of the Department of Housing and Urban Development counselor. Demand a fair interest rate based on current market conditions and your credit, along with a fixed interest rate. See a real estate attorney if the mortgage company refuses to modify the loan. Direct the attorney to write a letter to the mortgage company threatening a lawsuit if it continues to refuse to modify the loan.

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How to Ask for a Settlement

An excessive amount of credit card debt may lead you to ask for a settlement. When you settle your debts, you are making an agreement with the credit card company to pay an amount less than the full balance. Credit card companies do not readily disclose the fact that settlements are available. A credit card company will not let you settle your account unless you are at least 90 days past due. You can usually settle any where from 50 to 70 percent of your outstanding balance.

Instructions

1

Decide how much you can pay. If you have a large lump sum of cash, such as a tax refund or bonus, you may want to settle your credit card debt. When you call the credit card company have a target figure in mind to offer as a settlement.

2

Call the credit card company and explain your circumstances. Credit card companies will be more willing to offer extend a settlement if you are experiencing financial difficulty or some type of hardship. Provide them with all of the details. You may want to settle a credit card to help reduce your debt load.

3

Offer the settlement to the credit card company. You can start with a settlement figure of 30 to 35 percent of your outstanding balance. Tell the credit card company this is the amount you are prepared to pay as a settlement for your credit card debt. They may make a counter offer of 45 to 50 percent of the balance. A credit card company is more likely to accept your offer if they think you will file a petition for bankruptcy, which means they will not receive anything.

4

Ask for the offer in writing. Once you have successfully negotiated a settlement offer, make sure the credit card company provides you with the details in writing. In the past, some credit card companies have offered settlements and then forwarded the forgiven balance to a collection agency, according to the website Investopedia.

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Tennessee Laws on Debt Recovery

If you believe bill collectors are harassing you, take comfort in knowing that there are guidelines, specifically the Fair Debt Collection Practices Laws, designed to prohibit abusive practices by debt collectors. These laws further ensure fairness between your creditor and you. The state of Tennessee makes full use of the federal Fair Debt Collection Practices Act of 1977 and the Fair Credit Reporting Act.

History and Function

Initially enacted into law in 1978, the Fair Debt Collection Practices Act provides guidelines for how debt collectors may conduct themselves when they contact you. Enforced by the Federal Trade Commission, the purpose of the Act is to limit intimidating tactics used by creditors attempting to collect debts from you. The Act outlines general parameters that creditors must adhere to and outlines your basic rights in dealing with harassment from creditors. At times, the Act is used in combination with the Fair Credit Reporting Act, which provides protection for when reporting agencies report your credit information and regulates debt collection.

Violations

In Tennessee, violations of the laws of debt recovery that you may not know include communicating with you in any way, besides litigation, after receiving written notice from you to cease further communication or your refusal to pay the alleged debt. Your creditors also may not contact you if they know you are represented by an attorney and may not attempt any communications with you at your place of employment after you advise that your employer prohibits such personal contacts.

Collector Contacts

The Tennessee Fair Debt Collection Practices Act allows debt collectors to contact other people, but only to find out your whereabouts. Note that listing your number on the federal Do Not Call list does not prevent collectors from calling you in reference to your debt. Tennessee laws, however, do not allow collection agencies to call you before 8 a.m. and they cannot call you after 9 p.m., local time. Debt collectors also may not make threats of legal action or arrest that is either not allowed or not actually considered, and they may not place your personal demographic information on any list for publication. In the course of communications with you related to your debts, your creditors may not use abusive or profane language.

Counteracting Harassment

The Tennessee debt recovery laws provide limitations to the techniques that collection agencies can use to recover debt from you. They also inform consumers of their rights to counteract harassment from creditors. Communication is vital. The first step you should take is to contact the collection agency and speak to someone directly. Other options available to you include writing a letter to the collection agency informing it that you do not wish to be contacted or that you dispute the validity of the debt. If you believe your rights have been violated, you can file a complaint with the Tennessee Division of Consumer Affairs. You also can file suit if your rights are violated.

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Online Debt Resources

If you are drowning in debt and are not sure where to turn, look online for practical solutions to help you get into a better financial situation. In today's information technology, there are many resources available at your fingertips that can help you become debt free, if you know where to find them.

Credit Counseling

There are several credit counseling agencies available online who can work with you by going over your current financial situation and then suggest reasonable courses of action to help reduce your debt. Companies such as American Consumer Credit, the CCCS Credit Debit Counseling or the National Foundation For Credit Counseling. When you are searching for a credit counseling service it is important to use a nonprofit agency who has an excellent rating by the Better Business Bureau. According to the Federal Trade Commission, FTC, a legitimate nonprofit agency charges little or no fees and are interested in working with you to help solve your financial problems while for-profit companies may offer many of the same services but charge high or hidden fees.

Debt Management Program

A credit counseling agency may suggest that you enroll in a debt management program, DMP. In this type of program a credit counselor will work with your creditors to reduce interest rates and monthly payments. In a DMP, you deposit money each month with your credit counseling company and then they use these deposits to pay your credit card bills, student loans, medical bills or other unsecured debts, according to a payment schedule they've worked out.

Because the FTC and some state's attorneys general have sued several companies using deceptive practices and even lying about being nonprofit, it is important check their rating with the Better Business Bureau. Make sure you get everything in writing before you agree to any debt management program, and keep track of all your monthly billing statements from your creditors to ensure your payments are being made on time.

Making Homes Affordable Payment Reductions

If you have a mortgage and are currently having problems making your monthly payments, you may qualify for a program called Making Homes Affordable. This is a loan-modification program that doesn't cost anything to sign up for and you can usually go through your current lender. Many consumers have saved hundreds of dollars a month on their current mortgage, making it easier to pay off other debt. Check with your lender to see if you qualify.

Hardship Programs

Many credit card companies are offering hardship programs to their consumers who have lost their jobs or income. A hardship program involves lowering your payment while you get back on your feet. Need Help Paying Bills is an online site that provides hardship program information along with direct phone numbers to connect you with Chase, Discover, Bank of America and other creditors.

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