The non-dischargeable debts, and How to Discharge Some of Them
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 are non-dischargeable debts unless paid
can be repaid in Chapter 13 bankruptcy and property settlements can be discharged but child support, alimony and property settlements. Child Support and Alimony are generally unaffected. 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 repaid over 5 years.
Taxes under 3 years old are non-dischargeable debts in bankruptcy!
To be dischargeable, Taxes must be 3 years old, you must have filed returns at least 2 years ago, there must be no assessments within 240 day. Taxes are largely a timing issue. You can discharge the unsecured non priority part of the tax debt. And you can value the liens on homes in bankruptcy to reduce and pay them over time. But 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 on the unsecured tax debt is treated as unsecured debt.
Federally Guaranteed Student Loans are normally non-dischargeable debts
Student loans can be managed by a bankruptcy. You can stop the collections for years and pay them little or nothing in a Chapter 13. You can also force them to become what should be affordable. If they are an undue hardship the judge should allow you to discharge the debt in an adversary proceeding. This is a lot of work but if you qualify Deserving Debtors earn the discharge almost 50% of the time.
The Brunner test
The rules for student loans changed on 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 normally need to file for the Ford income based repayment loan program prior to filing to be considered for a hardship discharge.
Partial discharges are more common than complete discharges. Three studies show that persons who qualify under brunner and attempt the adversary proceeding will get a discharge almost 50% of the time. Most don’t know how to do this and even if they know how it is 5-10,000 dollars of work. See our page on How to manage student loans.
Debts due to theft or fraud.
Even if a debt had an elelment of fraud in it the debt may be 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
Criminal acts and intentional injuries are non dischargeable in bankruptcy. However, if injured parties fail to file an adversary proceeding and object to the discharge it is often 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 from a civil judgment 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
Filing a Chapter 13 normally eliminates your obligation to pay the marital property settlement if you properly structure the plan. Just 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).