It is a myth that certain debts such as student loan debt and unpaid taxes can never be discharged in a bankruptcy. Occasionally, they can be. It is important that any consumer who plans to file for bankruptcy stay informed concerning which debts can and cannot be included to avoid filing for bankruptcy unnecessarily.
Debts That Are Non-dischargeable
Certain types of debt are considered non-dischargeable no matter which bankruptcy chapter a debtor files under. These debts are typically debts that are owed to the government or debts that were levied as punishment for a crime.
- Child support
- Alimony
- Recent unpaid taxes
- Debt incurred by fraud
- Student Loans
- Judgments
Under certain circumstances, however, the Bankruptcy Code does allow for some of these debts to be discharged.
Domestic Debt Can Never Be Included in Bankruptcy
Debts such as child support and alimony are not eligible to be included in a bankruptcy because other people rely on the payment of these debts for their day to day survival. Back child support and alimony are included in this stipulation.
If a child has reached adulthood and is no longer entitled to receive child support, or an ex spouse has remarried and is no longer receiving alimony this does not waive a consumer’s legal responsibility to provide said parties with any money owed due to a past domestic judgment.
Non-dischargeable Tax Debts
A tax debt that is over three years old is considered recent and no provisions are made in the federal Bankruptcy Code for that debt to be discharged. If, however, the debt is more than three years old a Chapter 7 bankruptcy will liquidate and dismiss the tax debt along with other unsecured debts.
Property tax debts are only non-dischargeable if the consumer intends to keep his or her home. In the event that the home is liquidated, the homeowner is no longer responsible for debts connected to the home’s ownership--including back property taxes.
Student Loans Have the Strictest Rules About Bankruptcy Discharge
In most cases a student loan is always considered non-dischargeable. In certain instances, however, an individual may be able to have the student loan liquidated. Guidelines for student loan discharges are regulated by the Bankruptcy Abuse Prevention and Consumer Protection Act.
- School closed prior to degree being awarded
- Student loan debt was a result of fraud or identity theft
- Individual suffers from debilitating mental or physical illness
- Individual can prove that at no point in the future will he or she be financially stable enough to successfully repay the student loan debt
Debts Incurred By Fraud Must Be Proven Fraudulent
When most people think of fraudulent debts, they think of stolen credit cards and identify theft. When a bankruptcy court considers whether or not a debt is fraudulent, however, the primary consideration is when the debt was accrued and under which circumstances.
A creditor to whom money is owed can file a complaint of fraud for a variety of reasons. A consumer, however, has the right to fight this claim and have the debt included.
The biggest indicator of debt incurred by fraud is when the debt was accrued. Debts accrued within 60 days prior to filing bankruptcy may be subject to fraud allegations under the pretense that the consumer made purchases while planning to file for bankruptcy. This type of claim is difficult to prove.
Another type of fraud is misrepresentation. If a consumer lies about his or her income on an application for credit and then attempts to include the debt in a bankruptcy, the creditor can present a motion that the debt be considered fraudulent and non-dischargeable.
The vast majority of creditors will not petition a debt. Petitioning a debt and fighting a court battle requires time, money, and manpower that few creditors can spare. A good attorney can help a consumer navigate charges of debt fraud to have the account balance successfully discharged through bankruptcy.
Only Some Civil Judgments are Non-Dischargeable
A judgment, even one resulting in wage garnishment, is usually dischargeable through bankruptcy. The only judgments that are not dischargeable are those that were levied due to a lawsuit over wrongful death or injury that occurred while the individual was intoxicated. These judgments will remain, but most others can be removed.
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