Most Debts Are Discharged In Bankruptcy
The principal reason for filing bankruptcy is to obtain a discharge of the obligation to pay on your debts.
Most debts can be discharged in bankruptcy, but not all of them.
Some are automatically not discharged, while others require action by the creditor in order to make them not dischargeable.
Some debts which can be discharged in a Chapter 13 case, cannot be discharged in Chapter 7 or Chapter 11.
Debts Not Discharged In Bankruptcy
A. How Do Debts Become Not Discharged?
These types fall into two categories:
- Automatic, and
- Those requiring a formal objection and adversary proceeding (trial)
The automatically not discharged debts include Domestic Support Obligations (alimony, child support), certain taxes, fines and penalties owed to a governmental unit. These are some, ut not all, exceptions to discharge.
Others require the creditor to file a formal objection to discharge, which is like a lawsuit, on which there would be a trial to prove the required elements. There is a deadline in every case for filing an objection to discharge, which is approximately 3 months from the date of filing.
For more specific details on which debts are not discharged in bankruptcy, see my bankruptcy discharge page.
B. Some Of The Debts Which Cannot Be Discharged
- Debts Incurred Through Fraud or False Pretenses
This includes things like running up credit card debts without the intent or “reasonable expectation” of ability to pay. For example, if you lose your job and then use your credit cards to charge up a lot of debt knowing you will not be able to pay it, and then file a bankruptcy case, those specific charges can be determined to be not discharged.
Not Automatic: This element requires action by the creditor to file an objection to discharge within the required time period and prove the required elements. (No deadline for filing objection)
- Certain Tax Debts
Tax discharge is very complicated and requires an analysis of specific tax transcripts from the taxing agencies to determine dischargeability. But if all criteria are met, taxes including income tax and sales taxes can be discharged.
The shorthand requirements are that the taxes must be more than 3 years old from the date the returns were last due to be filed, the returns must have been filed at least 2 years prior to the bankruptcy filing (and no substitute returns filed by the taxing agency), the taxes must have been assessed at least 240 days prior to bankruptcy, and there must not have been a “willful evasion” to pay the taxes.
Trust fund taxes, such as employee payroll taxes, are not dischargeable.
Automatic: If the required time periods and other elements are met, the taxes are automatically discharged.
Some of these time periods may be extended under various circumstances. For more specifics on tax dischargeability, see my tax discharge page.
- Domestic Support Obligations
Child Support and Alimony obligations are not dischargeable in any Chapter. Other obligations from a family situation, such as marital equalization payments, may be discharged in Chapter 13, but not in Chapter 7 or 11.
Automatic: If the required time periods and other elements are met, the taxes are automatically discharged. (No deadline for filing objection)
- Willful and Malicious Injury
Debts resulting from willful and malicious injury are not dischargeable. This requires the creditor to prove both that the action taken was willful and that the actual injury was intended.
Not Automatic: This element requires action by the creditor to file an objection to discharge within the required time period and prove the required elements. (No deadline for filing objection)
- Fines, penalties owed to governmental units
This includes things like traffic tickets, toll booth charges and such. These may be dischargeable in Chapter 13, but not in a Chapter 7 or 11.
Automatic: If the required time periods and other elements are met, the taxes are automatically discharged. (No deadline for filing objection)
- Debts Incurred Through Embezzlement, Larceny
Not Automatic: This element requires action by the creditor to file an objection to discharge within the required time period and prove the required elements.
- Debts resulting from death or injury caused by driving while intoxicated
Automatic: If the required time periods and other elements are met, the taxes are automatically discharged. (No deadline for filing objection)
- Criminal Restitution
Awards of restitution in a criminal proceeding are never dischargeable.
Always Check With A Bankruptcy Attorney First
Determining which debts are discharged can be very tricky and requires a lot of expertise and experience. Be sure to hire a qualified bankruptcy attorney to determine which of your debts can be discharged.
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