Debts That Are Not Dischargeable in Bankruptcy Explained
Every year between 400,000 and 500,000 people file bankruptcy in the U.S. This legal process helps individuals and businesses get much needed relief from debts they can no longer pay. But it’s important to note that not all debts can be discharged via bankruptcy process.
In fact, there are many types of non dischargeable debt bankruptcy that can’t be eliminated by filing chapter 7 or chapter 13. As such, these debts remain the responsibility of the debtor even after you’ve completed the bankruptcy process.
Types of Non Dischargeable Debts in Bankruptcy
What Are Non-Dischargeable Debts?
If you’ve ever wondered “What types of debts cannot be discharged in bankruptcy?”, you’re not alone. These are specific types of debts that can’t be eliminated through bankruptcy proceedings. That means that you’ll owe these debts even after you’ve received a discharge for medical bills, car notes, credit card debts, etc.
Priority Debts
Taxes
Generally, tax debts are among the most common types of non dischargeable debts in bankruptcy. Thus, recent income taxes (typically those due within three years before filing for bankruptcy), payroll taxes, and penalties for tax evasion cannot be discharged. The government’s need to collect revenue and deter tax evasion underlies this policy.
However there is silver lining. Some older income tax debts may be eligible for discharge under specific conditions:
- The tax return was due at least three years ago,
- The tax return was filed at least two years ago,
- The tax assessment is at least 240 days old,
- There was no tax fraud or willful evasion.
Child Support and Alimony
Child support and alimony obligations are non dischargeable debts in bankruptcy – Which means the debts are prioritized to ensure the well-being of dependents. Further, the bankruptcy code explicitly excludes both current and past-due child support debts from discharge to protect the interests of children and ex-spouses who rely on these payments for their financial security.
If you don’t meet these legal obligations, it can lead to significant legal consequences, up to but not limited to wage garnishment and contempt of court charges.
Secured Debts
Mortgages
Bankruptcy can eliminate your personal liability for mortgage debt, but it doesn’t remove any liens on the property. Here’s what that potentially means for homeowners:
- If you want to keep your home, you’ll need to continue making payments,
- If you default on your payments, the lender can still foreclose on the property,
- In Chapter 7 bankruptcy, you may be able to surrender the property and discharge the debt in full,
- In Chapter 13 bankruptcy, you might be able to catch up on past-due payments over a specific period of time.
Car Loans
Car loans are considered secured debt, so they can be discharged. However, if there’s a lender’s lien on the vehicle, it will remain, even if your personal liability is discharged during the bankruptcy process. If you want to keep your car, you’ll need to:
- Stay current on payments,
- In some cases, reaffirm the debt (agree to remain liable for it post-bankruptcy),
- In Chapter 13 bankruptcy, you might be able to “cram down” the loan to the vehicle’s current value.
Debts Arising from Misconduct
Fraudulent Debts
If an individual has obtained debts through fraud or false pretenses, they are typically not eligible for discharge. This can include debts arising from:
- Using false information on credit applications,
- Making purchases with no intention of repaying,
- Running up credit card balances just before filing for bankruptcy,
- Lying about income or assets to obtain a loan.
In more complex cases a court may need to determine whether fraud occurred, which may involve a separate proceeding from the bankruptcy case.
Embezzlement and Larceny
Similarly, debts that are the result of embezzlement or larceny (theft) are non-dischargeable. This includes but is not limited to situations where person has misappropriated funds or property entrusted to them. The bankruptcy code explicitly aims to prevent individuals from using bankruptcy as shield against debts caused by criminal behavior.
Willful and Malicious Injury
In addition individuals who have accrued debts due to intentionally causing injury to another person or their property. This category includes debts arising from:
- Assault and battery,
- Intentional property damage,
- Slander or libel (in some cases),
- Injuries caused by drunk driving (in some jurisdictions).
The most important factor here is the intentional nature of the act as well as the debtor’s knowledge that injury was likely to result, which may be determined by a separate court.
Student Loans
General Rule
Student loans, both federal and private, are typically non-dischargeable in bankruptcy. This policy aims to ensure the continuity of student loan programs, and prevent abuse of bankruptcy system. For the most part, the most common types of student loans that can’t be discharged include:
- Federal Direct Loans,
- Federal Family Education Loans (FFEL),
- Federal Perkins Loans,
- Private student loans.
Exceptions
In rare cases, student loans might be discharged if you can prove that repaying the loan would cause undue hardship. However, it’s not an easy bar to clear – But in some cases, especially where the debtor has permanent disabilities or other significant life challenges, it may be possible. Contact us to discuss the details of your case.
By understanding what debts cannot be discharged by bankruptcy you can better plan your financial future. Knowing which debts not discharged by bankruptcy will help you manage your expectations and responsibilities. And it is crucial to comprehend what debts cannot be discharged in bankruptcy to navigate process effectively.
Fines and Penalties
Both fines imposed for criminal offenses and civil penalties (i.e., fines for violating laws) are considered non dischargeable debts in bankruptcy. Essentially, the rationale is that people shouldn’t be able to escape from criminal responsibility simply by filing bankruptcy.
Special Cases and Exceptions
While the categories above cover most non-dischargeable debts, there are special cases and exceptions:
- Some tax debts may become dischargeable if they meet specific criteria related to age and filing status
- Fraudulent debts may be dischargeable if the creditor fails to object during the bankruptcy proceeding
- In rare cases, courts may partially discharge student loans
- Some debts that are typically non-dischargeable in Chapter 7 bankruptcy may be dischargeable in Chapter 13 bankruptcy
Managing Non-Dischargeable Debts
Creating a Payment Plan
Since you can’t get rid of non dischargeable debts in bankruptcy, the next best option is to create a manageable payment plan that can help you stay on track and avoid further financial pain. This can include:
- Negotiating new terms with creditors
- Setting up installment plans
- Consolidating multiple debts into a single payment plan
Seeking Legal Advice
A skilled bankruptcy lawyer can help you understand your obligations, explore alternative solutions for debt relief, and help you manage repayment of non-dischargeable debts. Further they can help negotiate with creditors and restructure your debts. Lastly most importantly, your attorney will ensure that your rights are protected throughout process.
Exploring Alternative Solutions
Alternative solutions, such as debt consolidation, credit counseling and financial planning can provide relief and help manage bankruptcy non dischargeable debts effectively. These options can help you regain control of your finances, create budget and develop strategies for long term financial health.
Conclusion
Bankruptcy can be great for debt relief and starting fresh. However, it’s important to understand what debts are not discharged in bankruptcy before you start the process. By knowing which obligations remain (i.e., taxes, child support, alimony, and certain fines), you can be much better prepared to manage your current and future finances.
Contact The Attorney Debt Fighters
Are you struggling with mounting debts and aren’t sure about which bills can be discharged in your situation? If so, the Attorney Debt Fighters are here to provide you with expert guidance on bankruptcy including information about non-dischargeable debts in bankruptcy, alternative debt relief options and post bankruptcy tips.
Our experienced team of bankruptcy attorneys can help you navigate the complexities of state and federal bankruptcy law, develop sound strategies for managing non-dischargeable debts, and work towards a brighter financial future.
You don’t have to navigate the bankruptcy process alone – Contact us today to schedule your free initial consultation with an experienced bankruptcy lawyer in Florida.
