One of the biggest misconceptions about bankruptcy is that filing automatically wipes out all of your debts.
While bankruptcy can provide powerful relief from overwhelming debt, not every debt can be discharged in bankruptcy. Certain types of debts are excluded from discharge automatically, while others may only be discharged under specific circumstances.
Understanding which debts bankruptcy can eliminate—and which debts may remain—is an important part of deciding whether bankruptcy is right for you.
What Does It Mean to Discharge a Debt?
A bankruptcy discharge is a court order that releases a debtor from personal liability for certain debts.
Once an eligible debt is discharged, creditors generally cannot continue attempting to collect that debt from you personally.
However, a discharge does not necessarily eliminate every debt you owe. Bankruptcy law specifically identifies certain categories of debts that may survive a bankruptcy case.
The rules can also differ depending on whether you file Chapter 7 or Chapter 13 bankruptcy.
Which Debts Are Generally Not Discharged in Bankruptcy?
Some of the most common debts that may not be discharged include:
- Certain tax debts
- Child support and alimony obligations
- Certain debts arising from fraud
- Certain debts caused by intentional or malicious injury
- Certain student loans
- Criminal fines and penalties
- Certain debts related to driving while intoxicated
- Certain condominium or homeowners’ association obligations that arise after bankruptcy
- Certain debts that were not properly listed in the bankruptcy case
These categories can be subject to important exceptions and legal requirements. The fact that a debt falls into one of these categories does not always mean the debt will necessarily survive in every circumstance.
Child Support and Alimony
Domestic support obligations are generally not dischargeable in bankruptcy.
This can include obligations such as child support and alimony or other qualifying domestic support obligations.
Bankruptcy may help eliminate other types of debt that are making it difficult to meet these obligations, but filing bankruptcy generally does not erase your responsibility to pay child support or qualifying spousal support.
If you are behind on support payments, bankruptcy may still affect how other debts are handled, but you should speak with an attorney about your specific circumstances.
Certain Tax Debts
People sometimes assume that taxes can never be discharged in bankruptcy.
That is not entirely accurate.
Some tax debts may qualify for discharge under specific circumstances, while other tax obligations remain nondischargeable.
The age of the tax debt, the type of tax involved, whether a tax return was filed, and other factors can be important.
Because tax-discharge rules are complicated, anyone considering bankruptcy with significant tax debt should have those obligations reviewed carefully before filing.
Student Loans
Student loans are another type of debt that can be difficult to discharge.
Under federal bankruptcy law, certain educational loans are generally not discharged unless the debtor demonstrates that repayment would impose an undue hardship.
The rules surrounding student-loan discharge have evolved, and the process can involve a separate proceeding within the bankruptcy case.
If student loans are a major part of your financial hardship, do not assume that bankruptcy either will or will not help. Your particular loans and circumstances should be evaluated by a qualified attorney.
Debts Resulting from Fraud
Bankruptcy generally does not provide a way for someone to escape certain debts that were obtained through fraud or certain other forms of wrongful conduct.
For example, certain debts involving false representations, fraudulent conduct, or intentional concealment of financial information may be determined to be nondischargeable.
The circumstances surrounding the debt matter.
Not every dispute between a debtor and creditor constitutes fraud, and the specific legal requirements for establishing nondischargeability must be satisfied.
Debts Caused by Intentional or Malicious Conduct
Certain debts arising from willful and malicious injury to another person or their property may also survive bankruptcy.
This can include certain debts associated with intentionally damaging someone’s property or intentionally causing injury.
Again, the specific facts and legal findings matter. A debt does not automatically become nondischargeable simply because a creditor claims that the debtor acted improperly.
Criminal Fines and Certain Government Penalties
Bankruptcy generally does not eliminate criminal fines, penalties, or certain other obligations imposed as part of a criminal proceeding.
If you have criminal fines, restitution, or similar obligations, you should not assume that filing bankruptcy will eliminate them.
However, bankruptcy may still be able to address other debts that are contributing to your financial problems.
What About Credit Cards?
Credit-card debt is generally one of the types of unsecured debt that can potentially be discharged in bankruptcy.
This is an important distinction.
Simply having a credit card does not make the debt nondischargeable. However, certain credit-card charges can receive different treatment if they were incurred through fraud or under circumstances covered by the Bankruptcy Code.
For example, making substantial purchases or taking cash advances shortly before filing bankruptcy can raise questions about whether those particular charges should be discharged.
This is one reason it is important to consult with a bankruptcy attorney before making major financial decisions when you are considering filing.
What About Medical Bills?
Medical debt is another common type of unsecured debt that may be dischargeable in bankruptcy.
For someone overwhelmed by medical bills, credit cards, personal loans, or collection accounts, bankruptcy may provide an opportunity to eliminate qualifying unsecured debt.
However, the specific circumstances of the debt should always be reviewed as part of the overall bankruptcy analysis.
What About Car Loans and Mortgages?
Bankruptcy can eliminate your personal liability for certain secured debts, but it does not necessarily eliminate the creditor’s lien against the property.
For example, if you have a mortgage on your home, filing bankruptcy does not automatically mean you own the home free and clear.
Similarly, if you have a car loan, bankruptcy may address your personal obligation on the debt, but the lender’s rights in the vehicle can remain.
Whether you want to keep your home or vehicle is therefore an important consideration when discussing bankruptcy.
What Happens to Debts That Cannot Be Discharged?
If you have debts that will survive bankruptcy, those debts generally remain your responsibility after the bankruptcy case is completed.
That does not necessarily mean bankruptcy cannot help.
Imagine someone has $100,000 in total debt, but only a portion consists of nondischargeable obligations. If bankruptcy eliminates a large amount of qualifying credit-card, medical, or personal-loan debt, the person may have substantially more income available to address the debts that remain.
In other words, bankruptcy does not have to eliminate every debt to provide meaningful financial relief.
Chapter 7 vs. Chapter 13
The treatment of certain debts can also depend on which type of bankruptcy you file.
Chapter 7
Chapter 7 is designed to provide a relatively quick discharge of qualifying debts. Certain debts, however, remain nondischargeable under the Bankruptcy Code.
Chapter 13
Chapter 13 involves a court-approved repayment plan, typically lasting several years. In some situations, Chapter 13 can provide different treatment for certain debts than Chapter 7.
The choice between Chapter 7 and Chapter 13 should not be based solely on which debts you want to eliminate. Your income, assets, debts, household circumstances, and financial goals all need to be considered.
Don’t Assume a Debt Is (or Isn’t) Dischargeable
One of the most important things to understand is that the name of a debt does not always tell you whether it can be discharged.
Two people can have similar types of debt but receive different treatment depending on the facts surrounding the obligation.
Before filing bankruptcy, make a complete list of your debts and provide your attorney with as much information as possible about how each debt arose.
Your attorney can then determine which debts may be discharged, which debts may survive, and whether Chapter 7 or Chapter 13 may be appropriate.
The Bottom Line
So, what debts cannot be discharged in bankruptcy?
Some of the most common examples include:
- Child support and qualifying domestic support obligations
- Certain tax debts
- Certain student loans
- Certain debts resulting from fraud
- Certain debts resulting from willful and malicious injury
- Certain criminal fines and penalties
- Certain other debts specifically excluded under bankruptcy law
But bankruptcy can still eliminate many other types of debt, including qualifying credit-card debt, medical bills, personal loans, and collection accounts.
If you are struggling with debt, don’t assume that bankruptcy won’t help simply because you have one or more debts that may not be dischargeable.
The Law Offices of Adam M. Freiman, P.C. can review your individual financial situation, explain which debts may be eligible for discharge, and help you understand whether Chapter 7 or Chapter 13 bankruptcy may be appropriate for you.
The first step is understanding what bankruptcy can and cannot do for your situation.
This article is intended for general informational purposes only and does not constitute legal advice. Bankruptcy laws are complex, and whether a particular debt is dischargeable depends on the facts and circumstances of each case. Consult Adam Freiman, a qualified bankruptcy attorney, regarding your individual situation.
