Bankruptcy is a federal court process that allows individuals and businesses to either eliminate their debts or repay them under a payment plan.

The person or business that has filed a bankruptcy case is called the debtor. A creditor is any person or business that the debtor owed a debt to on the date the bankruptcy case was filed.

A bankruptcy discharge releases the debtor from personal liability for certain types of debts. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters and personal contacts.

Discharge

A discharge enables the honest debtor to begin a new financial life. The discharge eliminates the debtor's personal liability for all debts not excepted from discharge. Various categories of debts are excepted from discharge.

Excepted Debts

There are 21 categories of debts that are excepted from discharge. The bankruptcy court determines the dischargeability of debts excepted from discharge. A creditor who is owed a debt that may be excepted from discharge must initiate proceedings in the bankruptcy court for an exception to discharge. If the creditor does not act, the debt is automatically discharged. The 21 categories are:

  • Certain debts for taxes or customs duties
  • Certain debts obtained by fraud, false pretenses or a false representation
  • Certain debts not scheduled in time to permit the creditor to file a proof of claim or in time to permit the creditor to file a timely request for a determination of the dischargeability of the debt, unless the creditor had actual knowledge of the case
  • Debts for fraud or defalcation while acting in a fiduciary capacity, or for embezzlement or larceny
  • Debts for domestic support obligations
  • Debts for willful and malicious injury to another entity or to property of another entity
  • Certain debts for fines or penalties to governmental units
  • Debts for student loans made or guaranteed by governmental units, and other qualified educational loans unless failure to discharge the debt would result in undue hardship to the debtor or the debtor's dependents
  • Debts for death or personal injury caused by the debtor's operation of a motor vehicle, vessel or aircraft while intoxicated
  • Debts that were or could have been scheduled in a prior bankruptcy case in which the debtor waived discharge or was denied a discharge
  • Debts arising from fraud or breach of fiduciary duty in connection with a depository institution or credit union
  • Debts for malicious or reckless failure to fulfill a commitment to a federal depository institutions regulatory agency to maintain the capital of an insured depository institution
  • Debts for payment of an order of restitution
  • Certain debts incurred to pay a tax to the United States
  • Certain debts incurred to pay a tax to a governmental unit, other than the United States
  • Certain debts incurred to pay fines or penalties imposed under federal election law
  • Certain debts to a spouse, former spouse or child of the debtor incurred in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court or a determination made in accordance with state or territorial law by a governmental unit
  • Debts for fees or assessments to a condominium membership association or cooperative corporation that are due after the order for relief, for as long as the debtor or the bankruptcy trustee has a legal, equitable or possessory interest in the subject condominium unit or share of the cooperative corporation
  • Debts for filing fees, costs or expenses assessed by a court in any civil action or proceeding or appeal involving a prisoner or other costs and expenses assessed with respect to the filing
  • Debts for certain types of loans owed to a pension, profit-sharing, stock bonus or other plan
  • Debts arising from a judgment, order or settlement agreement based upon the debtor's violation of certain federal securities laws, state securities laws or regulations under federal or state securities laws, or for common law fraud, deceit or manipulation in connection with the purchase or sale of any security

Determinations of Dischargeability

A creditor must make a "request" for determination of dischargeability of a debt. A proceeding to determine dischargeability of a debt is called an adversary proceeding an is initiated with a complaint.

Questions for Your Attorney

  • What is an automatic discharge?
  • What debts are excepted from discharge?
  • Does a creditor who is owed a debt that is excepted from discharge need to do anything to make certain the debt is not discharged?
  • How soon after filing for chapter 7 does the court grant a discharge?