What Debts Are Not Dischargeable?
Bankruptcy is a profound and fundamental remedy that offers individual debtors a “fresh start” when they become overwhelmed by debt possibly caused by the loss of a job or the failure of a business, by serious illness, divorce, or some other calamity including inopportune decisions and basic irresponsibility.
The Federal Bankruptcy Code reflects Congressional attempts to balance the discharge of certain kinds of debt with legitimate creditor interests. In doing so, the Code identifies 21 categories of specific kinds of debt that can’t be discharged in either Chapter 7 or Chapter 13.
Nondischargeable Debts in Chapter 7
The discharge of debt in Chapter 7 applies only to individuals, not businesses. In general, nondischargeable debts in Chapter 7 include the following:
- Certain taxes and tax liens (that came due with extensions, earlier than 3 years from the filing date, for which tax returns were filed earlier than 2 years from the filing date and which were assessed earlier than 240 days from the filing date;
- Student loans (unless it would impose an undue hardship on the debtor and dependants–this rule is a significant bar in most courts and usually requires conditions of extreme hardship);
- Alimony and child support (domestic support obligations);
- Debts not properly scheduled in time to allow creditors to file proofs of claim;
- Debts arising from fraud, false pretenses or false representation;
- Debts arising while the Debtor was acting in a fiduciary capacity or for embezzlement or larceny;
- Debts for willful and malicious injury;
- Debts for fines or penalties to governmental units;
- Debts for judgments in wrongful death or personal injury lawsuits resulting from motor vehicle, vessel or aircraft accidents while the Debtor was intoxicated;
- “Eve of Bankruptcy” luxury purchases and credit card advances;
- Debts for Condominium or cooperative association fees or assessments that come due after the petition date;
- Debts arising as a result of driving while intoxicated;
- Debts that were no discharged in a debtor’s prior bankruptcy case or cases; and
- Debts that arose and to which the debtor obligated himself after filing his or her bankruptcy case.
Debts Dischargeable in Chapter 13 but Not in Chapter 7
The law defining the scope of a Chapter 13 discharge is complex and was recently modified. Accordingly, debts dischargeable in Chapter 13 but not in Chapter 7 generally include:
- Debts for willful and malicious injury to property (as opposed to a person);
- Debts incurred to pay non-dischargeable tax obligations; and
- Debts arising from property settlement in divorce or separation proceedings.
A Chapter 13 debtor who fails to complete his or her plan may convert to Chapter 7 or request a hardship discharge. Under limited circumstances a bankruptcy court may grant a hardship discharge in Chapter 13 but such discharge will not discharge any debts not otherwise discharged in Chapter 7.
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