What Debts Cannot Be Discharged?
Debts Not Dischargeable in Bankruptcy
Dischargeable vs. Nondischargeable Debt
Bankruptcy will not get rid of student loans, personal injury awards caused by driving under the influence, court fines and criminal restitution, alimony, or child support.
Tax debts incurred within the last 3 years are not dischargeable in bankruptcy, but taxes owed for returns filed more than 3 years ago are dischargeable.
If you took a large cash advance or made unusually large credit card charges within 6 months of filing bankruptcy, your creditor will probably sue to stop this debt from being discharged.
On the other hand, debts commonly relieved by bankruptcy include medical bills, personal loans, collection accounts, money judgments that do not claim fraud, deficiency balances, and credit card debt.
At The Sweeney Law Firm, P.C., our Memphis bankruptcy attorneys are devoted to assisting you with the finest bankruptcy plan to fit your requirements. There are multiple types of bankruptcy that can help individuals be comforted of their debts. Learn more about your bankruptcy options and alternatives by contacting us today.
How Does Chapter 7 Bankruptcy Work?
Chapter 7 bankruptcy is designed to discharge unsecured debt. In other words, it can discharge debt that is not backed by some form of collateral. This includes medical expenses, credit card bills, delinquent utility bills, and more.
On the other hand, debt like mortgage payments and car loans, which are backed by the property itself, must be handled differently. You are still entitled to make payments on car loans and mortgage payments, but in order to avoid repossession or foreclosure, you must stay current with those payments.
If you are charged fees related to nonpayment and intend on forfeiting your car or allowing the bank to foreclose on your property, that can be discharged in Chapter.
However, not all kinds of unsecured loans are available for discharge. Below, we’ll discuss the types of loans that cannot be discharged and how you can manage them.
Debts Not Listed on Your Bankruptcy
In order for a debt to be discharged in Chapter 7, you will be required to list that in your bankruptcy paperwork. Any debt that is left off the paperwork will not be discharged nor will you be able to add that debt after the bankruptcy has been granted. In other words, you’re stuck with it.
Tax Debts That Can’t Be Discharged
There are certain kinds of taxes that can be discharged in Chapter 7 bankruptcy and there are others that cannot. Understanding the difference can be vital to your decision to file or not.
Chapter 7 Bankruptcy can wipe out taxes when the following elements are all true:
- The taxes you are trying to wipe out are income taxes;
- You did not commit any form of fraud;
- Your debt is three years old or older;
- You filed a tax return and are in good standing with the IRS; and
- Your tax debt must be either unassessed or the last assessment was more than 240 days ago.
Debts for Child Support or Alimony
If you owe an ex-spouse money for child support or alimony, this cannot be discharged in Chapter 7. In addition, any debts arising from a divorce and owed to your former spouse will not be discharged in Chapter 7. You will not be able to discharge your attorney’s fees in issues related to child custody, child support, or spousal support either. Generally speaking, if its related to a divorce, it probably cannot be discharged.
Chapter 7 can discharge other debts that will free up your finances to get caught up on child support or alimony.
Administrative Fines or Penalties
Chapter 7 Bankruptcy will not discharge any debts that you owe the government. For instance, if you owe thousands of dollars in unpaid parking tickets or fines resulting from other violations, you will still have to repay them.
If you are ordered by the court to make restitution in a criminal case, this cannot be discharged in Chapter 7.
If you have been successfully sued in a personal injury lawsuit for driving under the influence of drugs or alcohol, you cannot discharge this amount in bankruptcy.
Homeowners Association Fees
Homeowners association fees or fees related to condominium ownership cannot be discharged in Chapter 7.
Federal Student Loans
Federal student loans can generally not be discharged in bankruptcy. There are some cases where you may be able to petition the court to discharge your student loans. However, the court rarely grant this. You would need to show an incapacity to work. When successful, there is usually a serious medical event involved.
Debts Incurred Immediately Before Bankruptcy
If you go out and purchase yourself thousands of dollars in luxury items and then file for bankruptcy, a creditor can object to the discharge. When successful, you will be on the hook for that amount of money. The creditor will be able to pursue that debt using whatever legal means necessary.
Can Chapter 13 Bankruptcy Discharge These Debts?
Chapter 13 sets up a repayment plan but it also discharges several kinds of unsecured debt. The repayment plan must make sense over a five-year period and must be in accord with your income and finances. In addition, there are limits to how much debt you can owe when filing for Chapter 13.
Chapter 13 cannot discharge the aforementioned debts, but it can roll them into a repayment plan. The debts, however, will survive the bankruptcy. For instance, let’s say you owe $50,000 in student loans. You can rehabilitate the loans by making payments and then continue to make payments throughout the bankruptcy. But after your Chapter 13 has successfully completed, whatever you owe will remain.
For those that owe more in secured loans than unsecured loans, Chapter 13 presents some decent options for keeping the property you need. I can also shave off second mortgages and some will qualify for a cramdown that allows them to pay the current real value without repaying the interest, late fees, or other charges.
In essence, Chapter 13 bankruptcy will give you a way to manage these debts while you’re discharging those debts that can be discharged.
Is it Worth Filing Chapter 7 Bankruptcy?
Probably. Once a creditor obtains a judgment against you, they can:
- place liens on your property,
- garnish your wages, or
- levy your bank account.
By discharging these debts, you free yourself from aggressive creditor actions. This will free up your finances to pay those debts that cannot be discharged in Chapter 7.
Talk to a Memphis Bankruptcy Attorney Today
At The Sweeney Law Firm P.C., we help those struggling with mounting debts to gain a fresh financial start. Our experienced Memphis TN bankruptcy attorney can advise you regarding which chapter of bankruptcy best suits your situation. We can also inform you as to alternatives to bankruptcy, or fight increasingly aggressive creditor actions against you. Contact us today to work with a bankruptcy lawyer who cares about your situation.