Bankruptcy

• Two ways exist for an individual to file bankruptcy. You can choose between filing Chapter 7 or Chapter 13 bankruptcy. When you declare Chapter 13 bankruptcy, none of your debts are forgiven or reduced. Instead, you establish a structured payment plan with your creditors. When you declare Chapter 7 bankruptcy, the majority of your assets are seized to create a bankruptcy estate. Creditors can no longer make claims against you personally and must seek payment from your bankruptcy estate.
  
  

Exempt Debts

• Not all debts can be cleared by filing Chapter 7 bankruptcy. Student loans cannot be forgiven through bankruptcy and will need to be paid off later in life. Any payments related to a divorce agreement are exempt from bankruptcy. This includes both alimony and child support. You will need to pay the agreed child support after the bankruptcy is discharged. Lastly, most federal debts are exempt from bankruptcy. Federal debts are any loans taken from the government as well as any unpaid taxes.
  
  

Cancelling Taxes

• While most federal debts are exempt from bankruptcy, you may be able to have a portion of your unpaid taxes cancelled. You are allowed to cancel taxes that were from a return filed over two years before the bankruptcy declaration. The tax return must have been due over three years ago. You must not have tried to evade paying taxes to be eligible for this cancellation. Any of your back taxes that meet these conditions will be cancelled when you file for Chapter 7 bankruptcy.
  
  

Reducing Child Support

• Although bankruptcy cannot reduce your child support payments, your future payments can be reduced by a court order. If your annual income has dropped by at least 20 percent, you may be able to win a judgment to modify your child support agreement. While this will not forgive past child support payments, your future payments would be lowered to a more manageable level. Your past child support debts can only be forgiven if your ex-spouse agrees to forgive the debt.