Debt That Cannot Be Discharged
While most of your debt will be discharged in bankruptcy, it is important to know that certain types of debt cannot be discharged and must eventually be repaid.
Generally, most unsecured debt is dischargeable which includes credit cards, medical bills, payday loans and account overdrafts. This also includes judgments for any of this type of debt including deficiency judgments after a repossession or foreclosure.
The changes in the bankruptcy code after 2005 made the discharge in a Chapter 13 a bit broader than in Chapter 7.
In Chapter 7, the list of nondischargeable debts includes:
- recent taxes (Usually within last 3 years - We can perform the technical analysis to determine if your tax debt can be discharged.)
- child support and alimony arrearages
- debts to a spouse ordered in a divorce decree
- damages and fines arising from drunk driving
- criminal fines and criminal restitution
- debts incurred by fraud or inentional wrongdoing
- debts incurred through malicious or intentional bodily injury
- student loans
- debts listed in a prior Chapter 7 where discharge was revoked
A complete list of nondischargeable debt is found in the bankruptcy code at 11 U.S.C. 523(a).
In Chapter 13, the list of nondischargeable debts includes:
- recent taxes (Usually within last 3 years - We can perform the technical analysis to determine if your tax debt can be discharged.)
- child support and alimony arrearages
- criminal restitution
- damages and fines arising from drunk driving
- debts incurred by fraud
- debts incurred through malicious or intentional bodily injury
- student loans
A Chapter 13 plan must provide for payment in full of priority debt including domestic support arrearages and recent taxes. One of the distinct advantages to Chapter 13 is the ability to pay nondischargeable debt over the period of the Chapter 13 plan. For example, if the IRS is aggressively seeking repayment of a $3000 tax debt at the rate of $250 per month, you can force the IRS to patiently receive the full amount over the life of a 60 month Chapter 13 plan at the rate of $50 per month.
A Chapter 13 may provide discharge of debts that were included in a prior Chapter 7 case where the discharge had been revoked. A classic example of this happening is when a debtor fails to follow a directive given by the trustee in the prior Chapter 7 case. The trustee, in that circumstance, can seek a motion to revoke the discharge.
Student loans are not dischargeable except in extreme circumstances where the repayment of the loan forces you into poverty conditions. During a Chapter 7 case, most debtors will simply continue their student loan payments. During a Chapter 13, however, the repayment obligation will usually be put on hold until your Chapter 13 plan is complete. At that time, you will be expected to continue your student loan payments.
Generally a lien, such as a mortgage or judgment lien on your property survives the bankruptcy. Certain liens, such as those on household goods can generally be voided by filing certain documents with your bankruptcy. In some circumstances liens on exempt property can be avoided to the extent that they impair the portion of the value that is exempt. Also, liens may be avoidable if the collateral has dropped in value and the lien has no equity to which it can attach.