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Which debts are discharged in bankruptcy?

GeorgetteMillerLaw.com > Practice Areas  > Bankruptcy Solutions > Which debts are discharged in bankruptcy?

Many people have the misconception that all of the debts they have will be erased when they file for bankruptcy. Under the bankruptcy code, there are some debts that are dischargeable while others are nondischargeable. Which debts are discharged in bankruptcy may also depend on whether the debtor files for protection under Chapter 7 or Chapter 13 of the bankruptcy code.

What is a discharge and how does it work?

In bankruptcy cases, a discharge of debt means that the debtor is no longer responsible for paying it. While the debt does not disappear, the creditor is prohibited from trying to collect on it and the debtor is not legally obligated to repay it. Liens that are secured by your real or personal property are not discharged and will remain. This means that the lienholder may take action to recover the property if payments are not made by the debtor.

In a majority of Chapter 7 bankruptcy cases, the debtors automatically are granted discharges at the end of their cases. The discharge is normally granted by the bankruptcy court 60 days following the meeting of creditors, which means that a discharge in Chapter 7 bankruptcy will happen somewhere between four and six months after you first file your petition.

Chapter 13 bankruptcy cases are different. In Chapter 13 cases, the debtor makes payments on his or her debts over a period of time lasting between three and five years. At the end of the repayment plan, his or her remaining dischargeable debts are then discharged.

Dischargeable debts in Chapter 7 bankruptcy

While some types of debts are nondischargeable, most of your debts are likely to be discharged under Chapter 7. Only those debts that were incurred prior to the Chapter 7 filing debt may be discharged, and any new debts you incur after you file will be your responsibility.

Under the bankruptcy code, there are categories listed of debts that are nondischargeable. Any debt that you have that isn’t in one of those categories may be discharged unless you committed fraud or another type of misconduct in incurring them.
Here is a listing of common types of debt that are dischargeable:

  • Credit card balances
  • Accounts held by collection agencies
  • Medical debts
  • Past due amounts on utility bills
  • Deficiency amounts on repossessions
  • In very rare cases, student loans
  • Personal injury claims that were not caused by drunk driving
  • Bad checks that were not fraudulent
  • Past due rent and other money owed on leases
  • Civil lawsuit judgments not based on fraud
  • Old tax debts and penalties
  • Veterans and social security benefits overpayments and veterans assistance loans
  • Business debts
  • Revolving charge account balances

Dischargeable debts in Chapter 13 bankruptcy

Chapter 13 bankruptcy treats dischargeable debts as nonpriority debts. This means that very little money is paid to the creditors holding them during the repayment plan period, and they are discharged at the successful completion of the three- to five-year repayment period. Secured debts, such as auto loans and mortgages, will be repaid through your repayment plan. If you are behind on your payments, you will pay your normal payment amounts while also paying off the arrearage. Alternatively, if you do not want to keep your car, you can instead choose to relinquish it through a voluntary surrender. At the end of your plan, the amount you owe on the balance will be discharged.

Most of the debts that are discharged in Chapter 13 are unsecured, nonpriority debts, including the list previously discussed under Chapter 7. There are some debts that may be discharged through Chapter 13 that are not dischargeable through Chapter 7, however.

1. Malicious and willful property damage

Chapter 13 allows you to discharge debts that arose because of your malicious and willful damage to property but not debts that arose from your willfully injuring another person.

2. Debts that arose so that you could pay nondischargeable tax debt

Under Chapter 7, you cannot discharge credit card debt that was incurred because you used your credit card to repay the IRS for nondischargeable taxes. These balances are dischargeable through Chapter 13, however.

3. Divorce and separation property settlement debts

You will always be responsible for paying court-ordered child and spousal support. Other debts arising out of your divorce or separation settlements that you owe to your former spouse may be discharged through Chapter 13, however.

4. Crammed-down liens

Chapter 13 provides a unique benefit to homeowners who have second mortgages or home equity lines of credit in certain cases. These may be stripped or crammed down if you owe more on your home than the amount of the first mortgage that is secured by it. Stripped liens are no longer secured by the property and are discharged at the end of your plan payments.

What are nondischargeable debts?

The bankruptcy code lists numerous categories of debts that are nondischargeable. These debts may not be discharged because of considerations of public policy about how they were incurred. There are some exceptions that may apply in rare scenarios for some otherwise nondischargeable debts, however.

Nondischargeable debts in Chapter 7 bankruptcy

If you decide to file for liquidation under Chapter 7, some of your debts may not be discharged, meaning that your obligation to repay them will remain. The court may also decide not to grant your requested discharge for any of the following reasons:

  • You failed to follow the court’s procedures and rules
  • The court decides to rule for a creditor who objects to the discharge of an otherwise dischargeable debt
  • The debt arose because you committed fraud
  • The debt was not listed in your bankruptcy schedules
  • You have debts that are listed in the bankruptcy code as ones that are nondischargeable
  • Debts that are nondischargeable by their nature include the following:
  • Certain categories of taxes
  • Spousal and child support
  • Divorce debts owed to your ex-spouse or your child if you incurred them during your divorce or separation for governmental agency penalties and fines
  • Student loans except in rare cases
  • Drunk-driving related personal injury judgments
  • Tax-advantaged retirement plan debts
  • Certain cooperative housing or condominium fees
  • Child support and custody-related attorney’s fees
  • Court penalties, fines and criminal case restitution

Nondischargeable debts in Chapter 13 bankruptcy

Some debts that are unable to be discharged through Chapter 7 may be discharged in Chapter 13. It is important to understand that Chapter 7 may allow you to discharge a large amount of debt much more quickly than Chapter 13 will allow. A majority of the debts that are nondischargeable through Chapter 7 are also nondischargeable through Chapter 13.

The particular chapter through which you should file will depend on several factors. If you have a lot of debts that are nondischargeable, Chapter 13 may be a more appropriate option because you will have a longer time period to pay the arrearages you owe. It is important that you consult with a bankruptcy attorney about the chapter that will work best for you. Contact our bankruptcy lawyers to schedule a consultation today to learn more about which debts are discharged in bankruptcy.