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Chapter 7 or "voluntary" bankruptcy

The specter of debt is pervasive in the daily lives of many Americans. Between mortgages, car payments, credit card debt, medical bills and other forms of debt, Kentucky residents can sometimes get overwhelmed by the amount of money they owe to creditors. This is why it is important for struggling individuals and businesses to fully understand how debt management solutions like Chapter 7 bankruptcy work, well in advance of reaching the point where it could be a necessary step toward financial health. 

The most common form of bankruptcy, and the one most often represented in popular media, is a Chapter 7 filing. In Chapter 7 bankruptcy, the individual works with a court-appointed trustee to take stock of the value of their assets as compared to the amount of secured and unsecured debt they carry. This helps the court determine what debts can be discharged and what may need to be paid back through asset dissolution. 

It is important to note that not all debts can be discharged. For example, tax debt can be a particularly complicated form of debt to handle. Generally speaking, tax debt is only eligible for discharge if it is not the result of a knowing attempt to dodge tax law. It must also be associated with a tax return due at least three years before the bankruptcy filing, and must be assessed at least 240 days prior to filing for Chapter 7. 

If this sounds complicated, the truth is it can be. Thankfully, here in Kentucky, many resources are available for citizens to learn the ins and outs of Chapter 7 bankruptcy before deciding if it is the right choice for them. In these cases, the advice and support of an experienced bankruptcy attorney can help to clarify this complicated process. 

Source: Forbes, "Taxes From A To Z (2018): V Is For Voluntary Bankruptcy", Kelly Phillips Erb, April 4, 2018

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