What debts are non-dischargeable and what debts are dischargeable in a chapter 7 bankruptcy?

Non-dischargeable debts

1) Student loans- Sorry!  Totally non-dischargeable unless you can prove undue hardship which is very hard to prove.   Any loan for any educational purpose is probably not dischargeable in bankruptcy.

2) Government fines, fees, and penalties- Generally not dischargeable in a bankruptcy.  Any ticket or fine from a government agency is non-dischargeable.  The exception to this rule is the three-year old income tax debt.  Generally the government exempts its debts from the bankruptcy system.

3) Spousal and child support obligations- All non-dischargeable and in fact the trustees often ask if these obligations are being paid whether the debtor is the party that owes the support or the party that is owed the support.

4) Debts involving criminality and fraud-Not dischargeable and drunk driving is specifically mentioned in the bankruptcy code under debts that are non-dischargeable.

Dischargeable debts

1) Credit cards and personal loans- Generally all dischargeable.  The exception is when the creditor can prove that you had no intention to pay back the debts when you incurred them.  They do this by looking at when you charged something and what you charged.  Generally old charges are safe as are all charges for necessities.  But recent large charges on credit cards for luxuries might be challenged by a creditor at an adversary hearing in bankruptcy court.

2) Medical debts- Usually dischargeable without a problem unless you got some purely cosmetic surgery recently that you had no intention to pay for when you underwent the surgery.

3) Deficiency balances-Deficiency balances on autos, jewelry, furniture, and even second and third loans on homes are all dischargeable in a bankruptcy without a problem if the creditor has already repossessed the original property.  If the creditor has not then all he can do is recover the property.  He must leave you alone.

4) Debts not listed in the bankruptcy- There is case-law that states that if there is an unintentional failure to list a debt in the bankruptcy then it is dischargeable if there was no fraud, and there were no assets that were distributed by the trustee, and you received your discharge.  These are 9th circuit rulings and there are two cases that support this principle so don’t worry about this one.

E-mail me today at farquharesq@yahoo.com if you have a particular debt that you have questions about.

I am a bankruptcy lawyer practicing bankruptcy law in San Diego.

What debts are not dischargeable in bankruptcy?

The most common types of non-dischargeable debts are student loans, government fines and fees and some taxes, spousal and child support.  There are other categories such as debts incurred due to fraud but these are much less common.

Student loans– These debts are almost always not dischargeable.  Whether they are government backed student loans or loans from a private agency they are not dischargeable.  The 2005 BAPCA law saw to that.  Loans issued “for any educational purpose” are now all non-dischargeable in bankruptcy and student loans will pass through the bankruptcy unaffected and you will have to pay them.

There is a hardship discharge for student loans in bankruptcy but it is very hard to get.  To get a hardship discharge of student loans your attorney would have to bring an adversary proceeding in bankruptcy court.  This amounts to a mini-trial where all the facts of the hardship would have to be proven.

It is expensive and time-consuming to bring such a s case and there is no assurance that you will win.  In fact it is apparently very hard to win one of these trials at all.  There are stories of judges looking at a disabled debtor and telling them that they though they cannot work any more in their field, they could teach and earn money to pay the student loan back that way.

Government fines, fees, penalties, and some taxes– If you get a traffic fine or criminal fine levied by a court or other government agency then those fines are not dischargeable in bankruptcy.  That is easy but taxes are more difficult.  The main rule for taxes is the 3 year rule that states that 3-year-old income taxes are dischargeable in bankruptcy.

So in 2012 (after April 15th)  income taxes for 2008 would be dischargeable.  This is because these taxes were due in april of 2009.  Both state and federal  income taxes are dischargeable in bankruptcy if the meet this 3 year rule.  There are other rules too but this is the main one that applies to most people.

Other types of taxes are not dischargeable so consult with an attorney for advice on your tax situation.

Spousal and child support– Forget about discharging these.  You will have to pay your ex-spouse or your children after you get a support obligation levied against you.

Fraud– Debts where fraud is proven will not be dischargeable.  If you get sued and the plaintiff alleges fraud then you want to fight these cases because bankruptcy will not save you from having to pay.  The normal credit card suit usually will not contain a fraud allegation but credit card companies can allege fraud in a bankruptcy.  This usually occurs if you have very large recent charges on your cards for cash advances or luxury items.

If you have such charges then tell your attorney so he can wait some time to file or advise you on the possible consequences if you do file right away.

The good news is that if your debt does not fall into one of the non-dischargeable categories then it is probably dischargeable in a bankruptcy!

For more info. check out my websites at:   www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office to speak toe for free about any bankruptcy or debt related issue  at (619) 702-5015.  Call now for free credit report and analysis!  I am a San Diego bankruptcy lawyer.  For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.