I am often asked by my bankruptcy clients are there certain debts that are better than others. The answer is yes. Below are the top three worst debts to have in my opinion. The reason these debts make my top three is because bankruptcy discharge powers either have no affect or there are multiple exceptions.
1. Student Loans What? Are you serious? How can student loans be a bad debt. Let me clarify. Student loans are a wonderful debt in certain circumstances, if they are taken seriously. Unfortunately, too many Americans have taken on too many student debts for degrees that do not realize a salary that can pay off the student loans. Additionally, unlike many other debts in bankruptcy, student loans are not dischargeable. This means that if you file for bankruptcy, you still owe the debt. There are minor exceptions to this rule, but the bankruptcy laws are very draconian and almost no one fits into these exceptions. If you want to apply for student loans, beware! You will owe this debt for the rest of your life until you pay it off. The collections powers of the federal government are very strong. Even in South Carolina your wages can be garnished for unpaid student loans even though the general rule is that consumer debts are not subject to wage garnishment in South Carolina.
2. Federal Taxes Most people know that it is a bad thing to not pay your taxes. Although there are a portion of income taxes (see other blogs on taxes to see which ones qualify) that are dischargeable in bankruptcy, there are still a great deal of federal taxes that are not dischargeable. In addition, as we all know the federal government takes taxes very seriously and will use their full collection powers to collect. Remember, even though South Carolina has a no wage garnishment statute, this not apply to federal taxes.
3. Child Support Let me clarify first that child support is a wonderful debt to have for responsible dads and moms. To be able to responsibly take care of your children financially is a wonderful obligation that most people would never consider defaulting on. That being said, for those that are irresponsible, child support is one of the worst debts you can have. Why? While the general rule is that you cannot go to jail for most debts, you can go to jail for failing to pay your child support obligations. In addition, your taxes can be seized, passports revoked, and drivers licenses suspended.
Article written by: Attorney Daniel Stone, Stone Law Firm, LLC