The decision to file bankruptcy is never easy. Bankruptcy offers a “fresh start” when debts become overwhelming. But before filing bankruptcy make sure you know what debts are dischargeable and what debts you can never get rid of.
Bankruptcy law recognizes that some debts must be paid, and you won’t receive a discharge from these debts in a bankruptcy case. Knowing what types of debts cannot be discharged can help you make the decision to file for bankruptcy or attempt to manage your debts.
What is a Discharged Debt
Unsecured debt discharged in Chapter 7 Bankruptcy releases individual debtors from personal liability for the debt and prevents the creditor from taking any collection actions against the debtor. There is no way to legally require a debtor to pay a debt once it has been discharged.
Secured debt like a home or car is different. Although a debtor is not personally liable for discharged debts, a valid lien that has not been made unenforceable in the bankruptcy case will remain. Secured creditors may enforce the lien to recover the property secured by the lien.
In the bankruptcy process it takes about 4 to 6 months to obtain a discharge after filing a Chapter 7 Petition.
Most Common Chapter 7 Dischargeable Debts
Typical debts consumers can claim in Bankruptcy are the following:
- Credit card charges (including overdue and late fees)
- Collection agency accounts
- Medical bills
- Personal loans from friends, family, and employers
- Utility bills (past due amounts only)
- Dishonored checks (unless based on fraud)
- Student loans (only in a few rare circumstances)
- Repossession deficiency balances
- Auto accident claims (except those involving drunk driving)
- Business debts
- Money owed under lease agreements (includes past due rent)
- Civil court judgments (unless based on fraud)
- Tax penalties and unpaid taxes past a certain number of years
- Attorney fees (except child support and alimony awards)
- Revolving charge accounts (except extended payment charges)
- Social security overpayments, and
- Veterans assistance loans and overpayments.
Most Common Chapter 7 Nondischargeable Debts
Except under rare, extreme circumstances these debts are not dischargeable under Bankruptcy:
- Unscheduled debts (any debts the debtor fails to list on the bankruptcy petition or include on the mailing list), unless the creditor had actual notice or knowledge of the bankruptcy filing. Also, many jurisdictions allow discharge of otherwise dischargeable debts not listed in the petition due to an innocent mistake when there are no assets to distribute.
- Certain taxes
- Debts for spousal or child support or alimony
- Debts owed to a former spouse or child if they arose out of a divorce or separation
- Debts to government agencies for fines and penalties
- Student loans (with a few rare exceptions)
- Debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated
- Debts owed to certain tax-advantaged retirement plans
- Debts for certain condominium or cooperative housing fees (such as homeowners association fees)
- Attorney fees in child custody and support cases, and
- Court fines and penalties, including criminal restitution.