The 7 non-dischargeable debts, and How to Discharge Many of Them Anyway
The normal reason for contesting a bankruptcy is you filed on one of seven non-dischargeable debts from section 11 United States Code 523 of the bankruptcy code that may not be discharged in bankruptcy.
- Child Support and Alimony can be repaid in Chapter 13 bankruptcy and property settlements can be discharged but child support, alimony and property settlements cannot be discharged in a Chapter 7. Child support to a person cant be discharged but child support to an agency it can be discharged if all of the disposable income is paid over 5 years.
- Taxes over 2 years old are dischargeable in bankruptcy! Taxes must be 3 years old, you must have filed returns at least 2 years ago, no assessments within 240 days, you can avoid liens on homes in bankruptcy for the amounts over the unprotected equity in the home, there must be no fraud involved, and any offer in compromise or bankruptcy will increase time periods. In a Chapter 13 bankruptcy taxes penalties and interest are treated as unsecured debt.
- Federally Guaranteed Student Loans changed October 1998 and 2005. Bankruptcy now only allows hardship discharges the Bankruptcy court considers 3 factors: a). Whether you made good faith efforts to repay (not required if you never had the money) b) Your ability to repay now and in the immediate future. c) Whether it creates hardship to your family if you repay. You also normally need to file for the Ford income based repayment loan program prior to filing to be considered for a hardship but partial discharges are common if your attorney knows how to do them. Most don’t.
- Debts due to theft or fraud. Are dischargeable in a Chapter 13. Only relied on, proven, material and intentional financial misrepresentations are fraud in a Chapter 7. If banks make bad loans or failed to check facts it does not make debts non-dischargeable in bankruptcy. The lender has a hard burden to prove fraud. However, a charge or cash advance over $1,000 or purchases over $1,000 for luxury items within 60 days before filing are assumed fraudulent so timing and amounts are important.
- Criminal Acts and Intentional Injuries are non dischargeable in bankruptcy. However, if injured parties fail to file an adversary proceeding it is discharged in bankruptcy anyway. Bankruptcy won’t stop criminal courts from ordering criminal restitution. Bankruptcy is only a defense in Civil Court.
- Drunken Driving Accidents. You can get your license back if you get a discharge in bankruptcy. Drunk driving accident victims must file adversary actions in bankruptcy court and prove drunk driving or chance being forever barred from collecting and you get your license back. (Learn how in the bankruptcy manual)
- Marital Property Settlement Agreements to pay a debt. Filing a Chapter 13 normally eliminates your obligation to pay the marital property settlement listing a marital property settlement in a Chapter 7 won’t.
If you have non-dischargeable debts, list them anyway there are ways to bankrupt many of them anyway and the expense must be accounted for in your budget. Debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for restitution or damages awarded in a civil case for willful or malicious actions by the debtor that cause personal injury or death to a person will be discharged unless a creditor timely files and prevails in an action to have such debts declared non-dischargeable.
11 U.S.C. §§ 1328, 523(c); Fed. R. Bankr. P. 4007(c).