DEBT THAT CANNOT BE DISCHARGED BY BANKRUPTCY

Other portions of this website are dedicated to a discussion of the debts that can be included in a bankruptcy filing. This article will carve out the debts that are not subject to discharge in a bankruptcy proceeding.

From the outset, remember as discussed in other articles of this website, the discharge order will only discharge unsecured debt…those debts that carry no security or collateral. Any secured debt can become unsecured by merely surrendering the collateral that secures the loan.

So, now that we have an unsecured debt, is it dischargeable? The answer to this question starts with a broad rule encompassing all debts; accordingly, the exceptions work to pare down and limit the general rule. All unsecured debts are subject to discharge, except those that are by statue, not subject to discharge. Non-dischargeable debts, as they are called, traditionally fall into one of two categories: (1) those debts by statute that are always non-dischargeable; and (2) those debts by statute that can be proven or ordered to be non-dischargeable.

Most people who seek my consultation concerning their bankruptcy options have a fair understanding of those debts that are always non-dischargeable. These are debts most commonly associated with the government or a municipality. Recent taxes levied by a governing body or municipality; fines, citations or tickets imposed by a governing body or municipality; Domestic Support Obligations commonly referred to child support, alimony or maintenance obligations, and student loans (unless the debtor seeks a court order of undue hardship which is very rare) are always non-dischargeable by bankruptcy law. Even student loans that originated with a private bank are non-dischargeable (i.e. private student loans). Court ordered debts, such as restitution, are non-dischargeable as well. Theses are the most common non-dischargeable debts. Naturally, there are exceptions that will apply in a few cases, but by and large you can consider the above debts be absolutely non-dischargeable.

The remaining classification of debt is debt that can be proven to be non-dischargeable. In other words, by themselves, these debts are dischargeable unless the creditor files an adversary proceeding and can prove that the debt is non-dischargeable. Whether they can be shown to be non-dischargeable or not turns on the manner in which the debts were incurred or made. In the broadest terms, I refer to these debts as debts made with some element of fraud. Maybe a loan or credit card was obtained by someone who intentionally falsified or made material misrepresentations about their financial situation. Perhaps it was a loan taken out on the eve of a bankruptcy filing without any intention or capacity to ever repay the debt. However for all of these debts, the creditor must formally object to the debt being included in the bankruptcy. In other words, someone who files a bankruptcy may list on their schedules a debt or loan may have been obtained by fraud. But, unless that creditor specifically objects within the prescribed amount of time, the debt will be discharged once the case is concluded along with all the other debt.

In either case, you should consult a competent bankruptcy attorney in determining whether a particular debt is in fact, subject to being discharged by a bankruptcy filing.

Government loan debt and bankruptcy