Bankruptcy offers a "fresh start" when you find that you're overwhelmed by your debts. People turn to bankruptcy for many reasons, and sometimes you have no control over your finances due to job loss, illness or some other catastrophe. Sometimes bad decisions and irresponsibility are behind a bankruptcy filing. The law tries to balance the need for a fresh start with creditors' interests.

However, many people don't realize that bankruptcy doesn't wipe out all debt types. Bankruptcy law recognizes that some debts must be paid, and you won't receive a discharge from these debts in a bankruptcy case. Know what types of debts can't be discharged, and know what to expect in your bankruptcy case.

Defining Discharge from Debt

In both Chapter 7 (liquidation) and Chapter 13 (readjustment of debts), the bankruptcy court grants you a discharge from your debts, and it's the reason you seek bankruptcy relief. This means that you have no further responsibility for the discharged debts, and your creditors can take no further collection actions against you.

Debts Excluded from Discharge

Certain debts can't be discharged in bankruptcy. The Bankruptcy Code lists 21 categories of such debts.

Chapter 7 Nondischargeable Debts

In a Chapter 7 case, the most common types of debts that can't be discharged are:

  • Taxes and tax liens
  • Student loans
  • Alimony and child support (domestic support obligations)
  • Debts obtained through fraud, false pretenses or false representation
  • Debts you failed to schedule in time to allow creditors to file proofs of claim (unscheduled debts)
  • Debts for fraud while you were acting in a fiduciary capacity, or for embezzlement or larceny
  • Debts for willful and malicious injury
  • Debts for fines or penalties to governmental units
  • Debts for judgments in wrongful death or personal injury lawsuits resulting from motor vehicle, vessel or aircraft accidents while you were intoxicated
  • Condominium or cooperative association fees or assessments

Chapter 13 Nondischargeable Debts

If your bankruptcy case is under Chapter 13, you won't be discharged from the following types of debts:

  • Child support and alimony (domestic support obligations)
  • Student loans
  • Fines and restitution
  • Certain taxes, such as withholding taxes if you had employees, or taxes connected to fraudulent tax returns or tax evasion
  • Debts incurred through fraud
  • Debts for fraud while you were acting in a fiduciary capacity, or for embezzlement or larceny
  • Debts for willful and malicious injury
  • Judgments in wrongful death or personal injury cases arising from your intoxication
  • Unscheduled debts
  • Debts incurred after filing your case, which weren't included in your Chapter 13 plan
  • Debts that are nondischargeable under other laws, for example amounts owed for certain health education programs
  • Interest owed on nondischargeable debts

Filing a bankruptcy petition is a big decision, and knowledge about the bankruptcy process gives you the power to make the best choices for your situation.

Questions for Your Attorney

  • What typically happens to a debt if it isn't discharged? How likely is it that a creditor will continue collection efforts?
  • How are nondischargeable debts treated if I haven't paid them off, and I file for bankruptcy in the future?
  • If I take out a loan to pay nondischargeable debt, what is the discharge status of the loan if I file for bankruptcy? Can it be discharged?

Tagged as: Bankruptcy, Personal Bankruptcy, debt discharge, unelegible debt