Many individuals who are considering bankruptcy as a form of debt relief are financially struggling in multiple areas of their life. Quite often, insurmountable debt has more than one source, and debtors who are seeking bankruptcy relief are likely interested in including as much debt into their bankruptcy petition as possible. While filing for bankruptcy is a real solution that can provide people with a fresh financial start, the process does come with certain limitations. While many types of debt, like credit card debt, car loans, and mortgages, can be addressed in bankruptcy court, some debts cannot be restructured or discharged.
Individual debtors who file for bankruptcy relief generally either file a Chapter 13 or a Chapter 7 bankruptcy petition. However, certain debts cannot be discharged in either type of bankruptcy proceeding. In Chapter 7 bankruptcies, where the petitioner seeks a discharge of certain debts, he or she will still be responsible for paying non-dischargeable debt after their bankruptcy case is filed. In the case of Chapter 13 bankruptcies, any debts that are classified as non-dischargeable will be included in the bankruptcy plan and will be required to be paid in their entirety throughout the life of the plan. Any existing balance will remain at the end of the petitioner’s case.
What debts are considered non-dischargeable? The following are types of debts that cannot be discharged in connection with individual bankruptcies according to the bankruptcy code:
- Any past due amounts in child support, alimony payments, and other debts related to family support
- Debts related to fines or judgments imposed against the petitioner for injury or death he or she caused while driving under the influence or alcohol or illicit substances
- Any student loan debt, unless the petitioner can prove that he or she would suffer an undue hardship if required to repay the loans. It is important to note that this standard is extremely hard to prove, and this type of debt is only discharged in very rare cases
- Any fines or penalties imposed on the petitioner for breaking the law, such as those related to traffic citations or restitution ordered in a criminal case
- Income tax debts within the past three taxable years prior to filing as well as all other tax debts
- Any debt that is not claimed in the debtor’s bankruptcy petition
Chapter 7 Non-Dischargeable Debt
Specifically, in a Chapter 7 case, a bankruptcy judge may declare certain types of debt as non-dischargeable if a creditor challenges the debtor’s request to have them discharged. These include:
- Debts the petitioner incurred as the result of fraud
- Purchases of luxury goods or services made on credit that exceed the value of $1,150.00 and were made within 60 days of filing the bankruptcy petition
- Loans or cash advances that exceed the value of $1,150.00 and were taken within 60 days of filing the bankruptcy petition
- Debts associated with the petitioner’s willful or malicious injury to another person or another’s property
- Debts from crimes such as embezzlement or larceny or from breach of trust
- Debts the petitioner owes according to the terms of a divorce decree or settlement, under certain circumstances
Call a Bankruptcy Attorney
If you are considering bankruptcy, an attorney can help you. Contact a law firm today to schedule a consultation with a Memphis, TN debt attorney.
Thanks to Darrell Castle & Associates for their insight into bankruptcy law and non-dischargeable debt in bankruptcy.