Which debts can be discharged in bankruptcy?
The primary goal of most bankruptcy cases is to eliminate or “discharge” the obligation to pay on debts. Many refer to this as debts being bankruptable.
Different debts are dischargeable (or non-dischargeable) in different chapters of bankruptcy. And, for certain egregious acts, the entire discharge of ALL debts can be denied. This page will detail the most common types (but by no means ALL) of debts that cannot be discharged.
Most debts are “bankruptable” in a Chapter 7, Chapter 11, or Chapter 13 case, with several notable exceptions. Your bankruptcy attorney or lawyer can tell you which of your debts can be discharged in your case. In general, the following debts are NOT dischargeable (please note that this is not a complete list):
- Debts incurred by fraud or false pretenses;
- Debts incurred by a false statement in writing (such as false credit application)
- Debts incurred by embezzlement or larceny;
- Spousal support or child support obligations
- Debts incurred by willful AND malicious injury
- Debts resulting from death or personal injury by debtor operating a motor vehicle while intoxicated.
- Criminal fines and restitution.
- Marital Equalization obligations (Ch. 7 only–these may be discharged in a Ch. 13).
- Income taxes for tax years less than 3 years ago (see more on bankruptcy tax issues)
- Fines and penalties owed to a governmental unit.
- Student Loans (unless you can prove “undue hardship”–see more on student loans in bankruptcy )
Some of the above require the creditor in your case to file an objection to discharge within a specified period of time (for example, for the fraud-based allegations), whereas others are self-executing (for example, taxes or student loans).
Certain types of tax obligations, such as income taxes, may be discharged under specific circumstances.
Discharging taxes is an extremely complicated area, and you should definitely consult with a knowledgeable attorney before deciding whether to file based on dischargeability of your taxes and before you take any further steps with your taxes. The only accurate way to determine if your tax obligations meet the criteria is to order literal transcripts (called “records of account”) from the taxing agencies and have them reviewed by a qualified bankruptcy attorney.
Tax Liens that have attached to property will survive a bankruptcy. What does that mean? It means that the lien will stay against your property regardless of your discharge of the underlying debt. So, when you ultimately sell that property, if there is extra money available, the lien will be paid first from those proceeds unless you have the lien removed.
Discharging fraud judgments or debts where fraud may have been involved
Debts that you incurred which were the result of an intentional or even negligent misrepresentation on your part are not dischargeable in a Chapter 7. Examples of these might be if you misstated your income on a credit card application, made false statements in order to induce someone to give you a loan, ran up your credit card debt shortly prior to filing bankruptcy, used your credit card or obtained a loan without any intent to repay it, or if someone has obtained a court judgment against you based on fraud.
Getting rid of other liens, abstracts of judgments, and trust deeds recorded against your property
The bankruptcy code enables a broad range of powers which can enable you to avoid liens that were placed against your personal property or real property (like a house). It is too complicated an analysis to deal with here, but if you have liens against your property, make sure to discuss this with your attorney.
Types of liens you may be able to get rid of include judgment liens recorded against your home or specific personal property. Also, in a Chapter 13 junior trust deeds against your home may be able to be removed under certain specific circumstances. This is not an option in a Chapter 7, so make sure to check out the Chapter 13 page and consult with an attorney.
Paying your taxes with your credit card
Debts incurred on your credit cards to pay taxes to the IRS will usually NOT be dischargeable in chapter 7 but may be dischargeable under Ch. 13.
There are situations under which the court can deny the discharge of ALL the debts in a bankruptcy case. See more on denial of discharge.