Discharge: What Debt Can Be Discharged?
The goal of your Chapter 7 case is to discharge or wipe debt that you are unable to pay. With suffocating debt gone you can restart your life and build a better future for you and your family.
Most consumer debt can be discharged in a Chapter 7 bankruptcy case. There are a couple uncommon blanket exceptions (such as fraud or abuse) that can render a debt not dischargeable which are discussed below. These are some of the most common types of debt we discharge for our clients in Chapter 7 bankruptcy cases:
CREDIT CARD DEBT:
Credit card debt can be discharged in a Chapter 7 bankruptcy.
Medical debt can be discharged in a Chapter 7 bankruptcy. This is one of the easiest debts to discharge in a bankruptcy case (and sadly one of the most common types of debts we see in bankruptcy).
Personal loans, signature loans, online loans, and other non-student loans can generally be discharged in a Chapter 7 bankruptcy.
Payday loans can be discharged in a Chapter 7 bankruptcy.
DEFICIENCY BALANCES FROM FORECLOSED OR REPOSSESSED ASSETS:
The balance the creditor claims you still owe after real estate has been foreclosed or a vehicle has been repossessed is the deficiency balance. This debt is dischargeable in a Chapter 7 bankruptcy.
Most types of tax debt cannot be discharged in a Chapter 7 bankruptcy. However, some income tax debts can be discharged in Chapter 7 if:
- It is an income tax liability,
- You filed your income tax return at least 2 years before the date you file bankruptcy (though the IRS is now arguing in many states that if the tax return was not filed on time, it can not be discharged regardless of when it was filed);
- The tax return was not a commissioner-filed return;
- The date on which the tax return was last due (including any extensions) is more than 3 years before the date you file bankruptcy;
- There have been no assessments in the 240 days prior to the bankruptcy filing;
- You did not willfully evade taxes or commit tax fraud in your tax filing;
If the taxing authority has issued a lien that has attached to your personal or real property that lien will survive bankruptcy like any other lien (such as a mortgage on your home or a lien on your vehicle) would.
WHAT TYPE OF DEBT IS NOT DISCHARGED IN A CHAPTER 7 BANKRUPTCY CASE?
Student loans are not discharged in a Chapter 7 bankruptcy case. If a person wants to try to discharge his or her student loans, this can be attempted after his or her Chapter 7 bankruptcy has been discharged. It is difficult to accomplish, and there is a special procedure to go through to prove that the student loans present an “undue hardship.”
MOST TAX DEBT:
Taxes where the due date of the tax filing is less than 3 years prior to the bankruptcy filing date are not dischargeable. Any tax required to be withheld such as sales and withholding taxes are not dischargeable. Property taxes and other types of taxes on property are generally not dischargeable. Additionally, any money borrowed and which was used to pay off a nondischargeable tax is itself not dischargeable.
RECENTLY CHARGED CONSUMER DEBT:
Charges totaling more than $675 to one single creditor that were for “luxury goods or services” during the 90 days before the bankruptcy case was filed are presumed to be nondischargeable.
RECENT CASH ADVANCES:
Cash advances aggregating more than $950 from a single consumer creditor taken out during the 70 days before the bankruptcy case are presumed to be nondischargeable.
DEBT INCURRED THROUGH MISREPRESENTATION OR FRAUD:
Debt incurred by misrepresenting or making fraudulent statements to induce the lender to extend credit are not dischargeable. Any debt incurred through fraud, defalcation, embezzlement, or breach of fiduciary duty is not dischargeable.
CHILD SUPPORT AND MAINTENANCE OBLIGATIONS:
Debts that are court ordered in a divorce decree or child support order that are in the nature of support for a child or a former spouse are not dischargeable. Courts have also found that money owed to another (such as County or State social services agencies) who provided care to a child are not dischargeable. These include such debts as Medical Assistance parental fees, out-of-home placement costs, guardian ad-litem fees, and court-ordered treatment fees for a minor child.
PROPERTY SETTLEMENTS FROM DIVORCE:
A property settlement that the family court orders a person to pay to his or her ex-spouse is not dischargeable in a Chapter 7 bankruptcy, but can be discharged in a Chapter 13 bankruptcy. In order to discharge a property settlement in Chapter 13, it must be clearly indicated in the divorce decree that the obligation is a property settlement and not spousal maintenance or child support.
WILLFUL AND MALICIOUS INJURY:
Any debt owed arising from the willful and malicious injury to another or to the property of another is not dischargeable.
DEATH OR INJURY WHILE USING A VEHICLE WHILE INTOXICATED:
Debt owed for injury or death caused by the use of a motor vehicle while intoxicated is not dischargeable.
RETIREMENT PLAN LOANS:
Loans owed to a retirement plan are not discharged or affected by bankruptcy.
CRIMINAL FINES, TICKETS, AND RESTITUTION:
Fines and restitution arising out of criminal or other enforcement actions (including parking and traffic tickets) are not dischargeable.