If you are considering filing for bankruptcy, it is important to understand what debts will and will not be discharged. There are certain types of debt that are non-dischargeable, meaning they will still be owed even after the bankruptcy process is complete. In this blog post, we will discuss the types of debt that are non-dischargeable in bankruptcy. We will also provide some tips on how to deal with unforgiven debt.
Debts You Can Discharge in Chapter 13 (But Not Chapter 7)
This is one reason to speak to a bankruptcy attorney. You need to decide what kind of bankruptcy case you need to file. A good understanding of the bankruptcy laws helps figure out what is best for you.
Some debts that cannot be discharged in Chapter 7 but may be in Chapter 13 bankruptcy are:
- non-support marital debts pursuant to a divorce or settlement agreement
- debts incurred to pay a nondischargeable tax debt (for instance, if you used a credit card to pay your taxes, you could discharge the credit card balance)
- non-criminal government fines and penalties
- condominium, cooperative, and homeowners’ association fees incurred after the bankruptcy filing date (depending on the court)
- debts for willfully and maliciously damaging property
- obligations for loans taken out from a retirement plan, and
- debts that a filer couldn’t discharge in a previous bankruptcy.
Debts That Are Not Discharged Unless You Prove an Exception Applies:
Certain debts will be discharged only if you ask the court to rule that they should be. In other words, the default is that these debts are not discharged unless you convince the court otherwise. These are:
- student loans; and
- regular income tax debt.
You can read about student loan repayment options here.
Debts That Are Discharged Unless A Creditor Successfully Objects
Some debts are discharged unless a creditor comes forward and convinces the court that they should not be. These debts include:
- debts arising from your fraud (purchasing items with no intent to pay it back, i.e. using your credit card right before you file). This includes recent debts for luxuries (items not needed for support or maintenance or you or your dependents) of more than $675 (as of April 2016 – changing April 2019) or cash advances of more than $950 (as of April 2016 – changing April 2019) within a certain period of time before you file;
- debts arising from your willful and malicious acts;
- debts arising from your embezzlement, larceny, or breach of fiduciary duty; and
- debts or creditors you don’t list on your bankruptcy papers.
Debts Never Discharged in Bankruptcy
While the goal of both Chapter 7 and Chapter 13 bankruptcy is to put your debts behind you so that you can move on with your life, not all debts are eligible for discharge.
The U.S. Bankruptcy Code lists 19 different categories of debts that cannot be discharged in Chapter 7 or Chapter 13. While the specifics vary somewhat among the different chapters, the most common examples of non-dischargeable debts are:
- Alimony and child support.
- Certain unpaid taxes, such as tax liens. However, some federal, state, and local taxes may be eligible for discharge if they date back several years.
- Debts for willful and malicious injury to another person or property. “Willful and malicious” here means deliberate and without just cause. In Chapter 13 bankruptcy, this applies only to injury to people; debts for property damage may be discharged.
- Debts for death or personal injury caused by the debtor’s operation of a motor vehicle while intoxicated from alcohol or impaired by other substances.
- Debts that you failed to list in your bankruptcy filing.
What happens to the non-dischargeable debt?
If you have non-dischargeable debt, it is important to remember that you are still obligated to pay it back. The bankruptcy process can provide some relief by temporarily stopping or reducing your payments, but the debt will not go away.
After your bankruptcy case, you can try to work out a payment arrangement or settlement with any creditor whose debt was not discharged as part of your bankruptcy case. If you fail to take any action to resolve the non-dischargeable debt then the creditor will have a right to seek collection against you including filing a lawsuit in court, garnishment of wages, and levying against a bank account.