These two requirements are quite straightforward to accomplish, but can trip you up if you don’t take care of them when you need to.
You file bankruptcy most likely under Chapter 7 or 13, or possibly 11. Ch. 12 is for farmers and fisherman, Ch. 9 for governmental entities.
If you owe an employee wages or benefits, it’s likely a priority debt. Same if you are owed wages or benefits. More likely to be paid.
Income tax debt may be discharged–legally written off–in a Chapter 7 case. It just needs to meet some conditions.
A bankruptcy trustee would pay your “priority” debts ahead of other debts in an “asset case.” But what happens in a “no asset case”?
Here’s what happens to “priority” debts in an “asset case.”
Here’s a scenario showing how Chapter 13 solves problems that Chapter 7 doesn’t solve in dealing with a creditor’s disputed lien.
When a creditor fails to enforce its lien in a Chapter 7 case, you are left exposed. Not so under Chapter 13.
You have much, much more time to catch up on unpaid mortgage payments, as well as any unpaid property taxes.
A support obligation is a very special kind of debt, and the resulting lien on your home has to be dealt with in a very special way.
Chapter 7 usually lets you retain your home if you are current (or not too far behind) on your mortgage payments (& other home-based debts).
Most debts can be discharged–permanently eliminated–in bankruptcy. Here are the exceptions.
In your goal of getting a fresh financial start, your most important tool is the “discharge”–the permanent legal elimination of your debts.
Your debts can be “secured,” “priority,” or “general unsecured.” How bankruptcy treats your debts depends on which kind they are.
Bankruptcy is federal law. The U.S. Constitution has said so from the beginning. Find the Bankruptcy Code in Title 11 of the U.S. Code.