The idea behind Chapter 7 bankruptcy is that a person can discharge – or cancel – certain types of debts, relieving them of any future legal obligation to pay. Typically, individuals file for Chapter 7 because of mounting unsecured debts, such as credit cards or medical bills. After going through the bankruptcy process – in Chapter 7, this means liquidating the debtor’s nonexempt assets and repaying the creditors as much as possible – a court will issue a discharge for any remaining unpaid debts.
While many debts can be discharged in bankruptcy, not all can be. Congress establishes the rules for what kinds of debts can and cannot be discharged. Here are some of the more common types of “non-dischargeable” debts.
Unscheduled Debts
When you file a petition for Chapter 7 bankruptcy, you must include a schedule with the names and mailing addresses of all of your known creditors. This ensures the creditor is notified of the bankruptcy case and has ample opportunity to file a claim against your bankruptcy estate. If you omit a creditor from your schedule, the bankruptcy court may refuse to discharge the debt you owe, unless the creditor otherwise had “notice or actual knowledge” of your case.
Family Support Obligations
You cannot discharge a “domestic support obligation,” including alimony or child support payments ordered by a court in connection with a divorce or separation agreement. These types of support obligations are considered priority debts by the bankruptcy court. Not only can they not be discharged, but the debtor also must continue to make required payments while the bankruptcy case is pending.
Tax Debts
Most recent tax debts cannot be discharged. However, you may be able to discharge older income tax debts under certain circumstances: The due date of the tax return must have been at least three years prior to the date of the bankruptcy petition; the return itself was filed at least two years prior; the assessment is at least 240 days (about eight months) old; and the taxpayer cannot be guilty of fraudulent conduct or tax evasion.
Student Loans
This is a major problem for many debtors. Student loans are difficult, though not impossible, to discharge in bankruptcy. Unless you can prove “undue hardship” – basically, forcing you to repay the loan would keep you trapped in poverty indefinitely – a judge cannot legally cancel a student loan debt.
Personal Injury Judgments and Government Fines
While bankruptcy can wipe out many types of civil judgments, you cannot discharge any fine, penalty, or payment ordered as part of a court or administrative proceeding. Federal law also expressly forbids discharge of a judgment arising from a personal injury or wrongful death claim where the debtor was held liable based on driving under the influence of alcohol or drugs. In other words, if you are driving drunk and injure someone, any judgment that person later obtains against you in court is non-dischargeable in bankruptcy.
Recent Purchases of Luxury Items
While credit card debt is generally dischargeable, a bankruptcy judge may refuse to discharge certain credit card purchases made within the 90-day period leading up to the debtor’s bankruptcy petition. Specifically, a creditor may object to the discharge of debts incurred for “luxury” purchases totaling more than $675 during the pre-bankruptcy period. What constitutes a “luxury” purchase depends on the circumstances, but it generally refers to any item that is not “reasonably necessary” for the support of the debtor or a dependent.
Fraudulent Debts
Bankruptcy is intended to discharge only honest debts incurred in good faith. If a creditor can prove a debt was obtained through “false pretenses, a false representation, or actual fraud,” the bankruptcy court may refuse to discharge the debt. This can include, for instance, lying on an application to obtain a line of credit.
Get Help From a Las Vegas Bankruptcy Lawyer Today
This is only a brief overview of some of the kinds of debts that are legally non-dischargeable. Many other debts, however, are dischargeable. An experienced Las Vegas bankruptcy attorney can sit down with you and look at your specific debts to help identify any potential problems. One important thing a bankruptcy attorney will do is make sure your petition is complete and accurate. The last thing you want to happen is for a dischargeable debt to be rendered non-dischargeable because it was not properly listed.
The Law Office of Erik Severino has been focused exclusively on consumer bankruptcy law since 2009. If you need help with a Chapter 7 or Chapter 13 bankruptcy filing, call us today at 702-997-4149 to schedule a free consultation.
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