Many people assume filing for bankruptcy will solve all of their financial problems. In fact, many have used the process to the point of abuse when it comes to repaying their debts. They accumulate debt, planning in advance to declare bankruptcy and eliminate their responsibility to pay it back. Unfortunately, this has not only led to stricter regulations that make it more difficult for the average, well-meaning person to file, it has also led many people to think bankruptcy means you can erase all of your debts.
Everyone, whether they are intentionally planning to use bankruptcy to shirk their financial obligations, or they face legitimate financial struggles out of their control, should understand that filing for bankruptcy has consequences. Additionally, filing might not eliminate all of the debts you owe.
Debts are eliminated in bankruptcy through a process known as discharge. Both Chapter 7 and Chapter 13 allow for discharge. When you are granted a discharge of a debt from bankruptcy court, it means you are no longer responsible for the debt and creditors can no longer make collection efforts against you regarding that debt.
Bankruptcy laws were designed to help people struggling with debt to get back on track, but they also take into account that some debts should never go unpaid. Understanding what can and cannot be discharged in a bankruptcy can help you determine if it is the right option for you.
What Debts are Non-Dischargeable?
There are 19 categories of debt excepted from discharge under Chapter 7 bankruptcy. A slightly broader discharge of debts is available to a debtor in Chapter 13.
Chapter 7 debt that is non-dischargeable includes:
• Certain types of tax claims
• Debts incurred to pay non-dischargeable taxes
• Debts not set forth by the debtor on the lists and schedules the debtor must file with the court. Although, where there were no assets to distribute to creditors, a debt innocently omitted can still be discharged in some jurisdictions. It’s still the best practice to make sure ALL debts are listed and avoid a potential problem after your case is closed.
• Debts for spousal or child support or alimony
• Debts for willful and malicious injuries to person or property
• Debts to governmental units for fines and penalties
• Debts for most student loans
• Debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated
• Debts owed to certain tax-advantaged retirement plans
• Debts for certain condominium or cooperative housing fees. (Will often depend on whether you want to keep the property)
Debts dischargeable in a Chapter 13, but not in chapter 7, include:
• Debts for willful and malicious injury to property (but not willful injury to a person)
• Debts incurred to pay non-dischargeable tax obligations
• Debts arising from property settlements in divorce or separation proceedings
Those filing for Chapter 13 generally receive a discharge only after completing all payments required by the court-approved repayment plan, but there are some limited circumstances under which he or she can request a “hardship discharge” without fulfilling repayment duties. Such a discharge is available only to a debtor whose failure to complete plan payments is due to circumstances beyond his or her control.
Despite some of the limitations of bankruptcy, it is still one of the most useful tools available to you to help you get back on track financially. If you would like to learn more or you are ready to begin the bankruptcy process, contact the law office of Frank J. LaPerch, PC at 845.942.5500