Patrick O'Malley

Debts That Are Discharged and Cannot Be Discharged In Bankruptcy

Since the primary goal of filing bankruptcy is to eliminate (discharge) debt, it is not surprising to learn that most types of debt are discharged by a bankruptcy. But, some debts are not discharged. Some are never discharged by a bankruptcy, while others are discharged only if additional requirements are satisfied. Further complicating this discussion, there are certain debts that cannot be discharged in Chapter 7, but that can be discharged in Chapters 11 and 13. This leads to devising a filing strategy that best matches the filer’s facts and goals.

Note: Businesses in Chapter 7 do not actually discharge the debts. Because there is no company left afterward to collect on, this may lead to the owner’s personal liability for some debts, like a personal guarantee on a loan or lease.

Debts that ARE discharged by bankruptcy:

All debt that is not listed below is discharged.

Most common types of debts that ARE NOT discharged by Chapter 7 bankruptcy:

Alimony, including legal fees

Child support, including legal fees

Divorce settlement

Government fines and penalties, including civil and criminal legal proceedings

Personal injury that arises from drunk driving

Loans from retirement plans

Debts from a previous bankruptcy filing

Taxes (but, see below for the situation when there is old income tax debt.)

Most common types of debts that ARE NOT discharged by Chapter 11 or 13 bankruptcy: These debts are priority debts. They are top priority for payment by the repayment plan and will persist afterward, if not fully paid during the repayment plan period.

Alimony, including legal fees

Child support, including legal fees

Divorce settlement (*But, the non-support debt, ie. the property division debt, IS dischargeable in Chapter 13.)

Fines and penalties for criminal legal proceedings

Personal injury that arises from drunk driving

Taxes (but, see below for the situation when there is old income tax debt.) * But, debts taken on in order to pay a tax debt are discharged in Chapter 13. This is the situation where a credit card was used to pay taxes. The credit card debt can be discharged.

Debts that may be discharged in bankruptcy, if the filer can prove certain facts exist:

Student loans are theoretically dischargeable, but in reality are nearly impossible to discharge.

Income taxes that are at least three years old.

Debts that will be discharged, unless the creditor convinces the court otherwise:

Fraud, including ‘luxury goods’ purchases and some cash advances that were made shortly before the filing date.

Injury, to persons or property.

Contact us for help

Business Bankruptcy Solutions helps you lower your debts, renegotiate contracts and save your businesses. Call (720) 674-7311 or email now to schedule a free consultation. We will discuss the problems facing both your business and personal finances and the tools we can use to achieve your goals. We draw upon decades of legal and business experience to provide you with actionable solutions. With BBS on board, we’ll help you weather this storm.

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