When you file for bankruptcy relief, your goal is to get out debt. For that reason, you want to discharge as many of your debts as possible. While most unsecured debts are eligible for a discharge in Chapter 7 and Chapter 13, several debts cannot be discharged in bankruptcy.
Common debts that are not eligible for a bankruptcy discharge include:
• Alimony or spousal support
• Child support
• Most debts owed to government entities
• Income Taxes
• Student Loans
In some cases, a debtor can discharge income taxes if the taxes meet all of the requirements for discharge of old tax debt. Furthermore, some debtors qualify for a hardship discharge of student loans. However, most income taxes and student loans are not dischargeable in a bankruptcy case.
Are There Other Debts That Are Not Dischargeable?
Yes, other debts may not be dischargeable in a bankruptcy case. Creditors may file an objection to discharge to stop the debts from being discharged pursuant to bankruptcy laws. An adversary proceeding is a lawsuit within the bankruptcy court seeking various relief. Creditors who believe that their debts are not eligible for a discharge under bankruptcy laws may file an adversary proceeding in your case.
Defending an adversary proceeding can be expensive and time-consuming. It is always best to disclose all information to your Orange Park Bankruptcy Lawyer your debts. He can deal with a variety of issues within a bankruptcy case, but he must know about the issues to deal with them effectively.
Debts That May Be Allowed After a Creditor Objects to Discharge or Files an Adversary Proceeding
Three debts that might be allowed if a creditor or party files an adversary proceeding under Bankruptcy Code §523 are:
• Debts for Luxury Goods Within 90 Days of Filing Bankruptcy
Under §523 of the Bankruptcy Code, the court may declare a debt non-dischargeable if the debt was incurred under “false pretenses, a false representation, or actual fraud.” The code section does not explain or define these terms. Therefore, the court applies the decisions in previous cases to determine if a debt was obtained under fraud or false pretenses when a creditor objects to discharge based on these grounds.
One of the common types of transactions that fall within this category is the purchase of luxury goods within 90 days before filing your bankruptcy petition. If you incurred consumer debt to purchase $675 in “luxury” goods or services within the 90 days of filing your bankruptcy petition, the court will presume the debt is non-dischargeable unless you can prove that there was no intended misrepresentation or fraud.
The creditor does not need to prove that you did not intend to pay the debt to win the case because of the automatic presumption that you knew you would be filing for bankruptcy relief within three months and would not be required to repay the debt.
“Luxury” goods or services do not need to be high-dollar, brand name, or designer goods and services. Goods and services may fall into this category if they are not reasonably necessary for your maintenance or support or the maintenance and support of your dependents. Convincing the court what is “reasonably necessary” could be an uphill battle.
• Credit Card Debt Incurred to Pay Debts That Would be Non-Dischargeable
Credit card debt that is not incurred through fraud, misrepresentation, or other illegal circumstances is typically dischargeable in bankruptcy. Most debtors discharge all credit card debt when they file for bankruptcy relief. However, a creditor may object to your discharge if you used your credit cards to pay debts that would otherwise be non-dischargeable in your bankruptcy case. For example, domestic support (alimony, spousal support, and child support) is non-dischargeable in a bankruptcy case (courtesy of Tony Turner’s tweet). Most student loans and income tax debts are also non-dischargeable in Chapter 7 and Chapter 13 cases. If you use your credit cards to pay these debts before filing a bankruptcy case, the creditor may successfully challenge the discharge. The theory is that a debtor should not be allowed to use credit that is typically dischargeable to get rid of debts that the debtor is legally liable to pay regardless of whether the debtor obtains a bankruptcy discharge.
• Damages Related to Intentional Acts That Cause Another Person Injury or Damages
Section 523(a)(6) prohibits a debtor from discharging debts that are incurred because of the “willful and malicious injury” to another person. These acts are known as “intentional torts,” including personal injury judgments and settlements. A common example of a debt that is typically not eligible for discharge under this section would be a personal judgment related to a drunk driving accident or a drugged driving accident. Another example would be if the debtor intentionally caused another person injury by assaulting the person physically.
For example, if a debtor has a personal injury judgment arising from a DUI accident for $50,000, that debt would probably not be dischargeable in a bankruptcy case.
Notify Your Bankruptcy Attorney of Unusual Issues Immediately
Even though you may owe a debt that is potentially non-dischargeable, there might be a way to file for bankruptcy relief to get rid of the debt. For instance, the timing of your bankruptcy filing may be adjusted to decrease the chance the creditor may file an adversary proceeding objecting to discharge. However, your attorney must be aware of the issue to develop a strategy for dealing with any potential problems.
Being honest and upfront with your bankruptcy attorney is the best way to avoid problems in your bankruptcy case. Your attorney is your legal advocate to protect your best interest. Help your attorney by disclosing all information, even if you do not think it may be relevant.