Filing for bankruptcy may help you get out of debt and give you a second chance to reset your finances. When discussing consumer bankruptcies, Chapter 7 or Chapter 13 bankruptcy can help you discharge multiple types of debt. But, practically, you can’t shed all debts from your shoulders.
Once you’ve discharged your debts, the creditor can’t take legal action against you. They can not try to collect the debt or seize any of your assets listed as collateral. Bankruptcy can’t discharge all types of debts, and some are too difficult to get discharged.
Bankruptcy is governed by federal law and executed by federal bankruptcy courts. So, if you are left with a few non-dischargeable debts after filing Chapter 7, you’ll still have to pay them. In the case of Chapter 13 bankruptcy, you have to pay off most non-dischargeable debts through a repayment plan.
Before moving into the discussion on non-dischargeable debts, let’s look at the debts that are dischargeable in both Chapter 7 and Chapter 13 bankruptcy.
Type of debts discharged in Chapter 7 and Chapter 13 Bankruptcy
- Personal loans
- Medical bills
- Credit card debt
- Debts from car accidents
- Promissory notes
- Debts under contracts or leases
- Lawsuit judgments (associated liens remain intact)
In Chapter 7, it will take approximately four months to get your debts discharged after filing bankruptcy. The entire process is overseen by the Administrative Office of the U.S. Courts.
After filing Chapter 13 bankruptcy, you have to repay a portion of your unpaid debts within three to five years. You can retain your nonexempt assets if you follow the terms of the bankruptcy agreement. At the end of five years, your remaining debts will be discharged.
Type of debts discharged only in Chapter 13 Bankruptcy
- Debts incurred due to the payments of non-dischargeable tax debts
- Marital debts caused by a divorce or settlement agreement (excluding “support”)
- Loans you have taken from retirement accounts
- Fees associated with coop, condo, and HOA
- Court fees
- Undischarged debts from a previous bankruptcy.
What are the non-dischargeable debts in bankruptcy?
The main focus of both Chapter 7 and Chapter 13 bankruptcy is to discharge most of your consumer debts. Few of the debts are non-dischargeable and cannot be discharged through bankruptcy. There are 19 categories of non-dischargeable debts. Some of these debts can’t be challenged and are not subject to a hearing. However, other non-dischargeable debts can be discharged if a creditor does not challenge them.
These are some of the non-dischargeable debts in bankruptcy:
- Different federal, state, and local taxes
- Student loans
- Child support or alimony
- Debts not listed initially (or debts of unlisted creditors).
- Restitution, fines, and penalties imposed by government agencies
- Personal injury debts from drunk driving cases
- Court fees (only in Chapter 7)
- Debts caused by tax-advantaged retirement plans
- Non-dischargeable debts in a prior bankruptcy
- Condo or cooperative housing fee debts
- Debts owed to specific pension plans
- Attorneys’ fees for child custody or support
- Penalties, court fines or criminal restitution
To get more details on this subject, request a bankruptcy attorney to suggest resources on Chapter 7 bankruptcy on Chapter 7 bankruptcy.
Other debts can be non-dischargeable if a creditor challenges your discharge. The court will address a hearing for both the bankruptcy filer and the creditor. However, if the creditor does not challenge, or if the court disagrees with the objection, your debts will be discharged.
The following debts are non-dischargeable if a creditor raises an objection in the court:
- Credit card purchases for luxury goods or services taken 90 days before the bankruptcy filing
- Debts from fraudulent activities
- Cash advances taken within 70 days after the bankruptcy filing
- Debts due to embezzlement, theft, or breach of fiduciary duty
- Debts caused by willful and malicious injury
- Debts incurred due to a divorce settlement agreement or court decree
When can you face a denial for debt discharge during bankruptcy?
Denial of debt discharge in Chapter 7 can happen if the court finds out the debtor failed to maintain or provide adequate documents or financial records. It might hurt the case if he or she committed a bankruptcy crime such as perjury. Furthermore, if the debtor deliberately hid, transferred, or destroyed property belonging to the estate, or disobeyed any order of the bankruptcy court, they may face a denial of debt discharge. Apart from that, the debtor must provide a satisfactory explanation of any loss of assets and complete an instructional course on financial management.
How can a court revoke debt discharge?
The court may revoke a Chapter 7 bankruptcy discharge when:
- The debtor hid a property that belongs to the estate, and he or she deliberately failed to report the acquisition
- The debtor does not surrender the property to the trustee
- The creditor, bankruptcy trustee, or U.S. trustee ask the court for a revocation (fraudulent discharge)
- Required documents aren’t provided, or other wrong information is sent to the audit of the bankruptcy case
How can a bankruptcy attorney help you?
Bankruptcy will help you eliminate unsecured debts such as medical bills and credit card bills. It also protects you from abusive creditors and debt collection calls. But filing bankruptcy isn’t easy; you have to be careful and stay up to date with the laws. In most cases, a well-executed bankruptcy filing also leaves traces of certain debts, such as student loans, personal injury debts, or child support.
A lawyer can help you determine the amount of dischargeable debts and non-dischargeable debts. An expert attorney may explain the categories of debts that won’t be discharged in your bankruptcy filing. So, to get an expert opinion about managing your debts and filing for bankruptcy, contact an attorney as soon as possible.
Author Bio: Lyle Solomon has considerable litigation experience as well as substantial hands-on knowledge and expertise in legal analysis and writing. Since 2003, he has been a member of the State Bar of California. In 1998, he graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, and now serves as a principal attorney for the Oak View Law Group in Rocklin, California.