When filing for either Chapter 7 or Chapter 13 bankruptcy the aim is to get debts discharged. Getting a debt discharged means you will no longer have to pay those debts. Most consumer debt is typically discharged (for example credit cards and medical bills). However, there is a list of debts that will not normally be discharged and will have to be paid. These are debts that Congress believes should be paid in the interest of society.
What Debts Cannot Be Erased Or Discharged?
When you receive a discharge of your other debts, these non-dischargeable debts will still be your responsibility. At the end of this list there are also some debts that will be discharged unless the creditor challenges the discharge.
Debts You Did Not Mention When Filing
When you file for bankruptcy, you are instructed to list all assets and debts as part of the process. If you fail to list a debt, then it will not be included in the bankruptcy, and it cannot be erased. If you remember the debt while the bankruptcy is still open it may be possible to amend your schedule of debts and allow the creditor notice. If this is done, then you may be able to get the debts erased. It is important that if you discover an omission, that you immediately talk with your bankruptcy attorney.
Several Types Of Taxes
Most tax debts are not discharged when you go bankrupt. This means that after the bankruptcy case is over you are still responsible for paying them. However, it is not straightforward, and it would be a mistake to say that no income tax debts can be discharged. For income taxes to be discharged, there are five requirements:
- The tax is income tax
- You did not try to evade taxes, and you did not file a fraudulent tax return.
- You file a tax return for the debt in question at least two years before you filed for bankruptcy (a late return does not count).
- The tax date was three years old or older before your bankruptcy filing, and …
- The IRS assessed your income tax at least 240 days before you filed a bankruptcy petition.
If the tax cannot be discharged in Chapter 7 bankruptcy, you may consider Chapter 13 as this may allow you to suspend any tax penalties you are facing. It is best to refer to a suitably qualified attorney for advice on this. Chapter 13 may also set your payment plan, which the IRS cannot object to, at 0% interest, which is better than the deal you will get negotiating directly with the IRS.
Recent property taxes, sales taxes, taxes on trust funds, and non-punitive tax penalties less than three years old at the time of filing cannot be discharged.
Child Support Or Alimony
When you owe child support or alimony because you have not paid all or some of what you are supposed to pay, the consequences can be serious. The general rule is that alimony and child support debts cannot be discharged in bankruptcy. However, bankruptcy is often an immediate effect of divorce and bankruptcy law, and family law can often clash in Texas. I would certainly advise that you seek legal counsel on this as it can be very complex.
Government Fines & Penalties
One of the primary reasons why people file for bankruptcy are financial issues relating to a criminal matter. Whether you can clear a fine through bankruptcy will depend to a great extent on why you were fined in the first place. Was it issued as a punishment, or as a reimbursement?
Traffic tickets and restitution payments are not dischargeable in Chapter 7 bankruptcy. In Chapter 13 bankruptcy fines and penalties owed to a government agency may be discharged unless they are from criminal sentencing. This is another case where it is wise to contact a local bankruptcy attorney.
Student loans cannot be discharged during bankruptcy procedures under Section 523(a)(8) of the Bankruptcy Code.
Drunk Driving-Related Personal Injury Debts
Debts incurred for death or personal injury as a result of driving while drunk cannot be discharged in bankruptcy.
Debt From Tax-Advantaged Retirement Plans
Retirement plans that qualify under ERISA are protected during bankruptcy. If you have debts from tax-advantaged retirement plans, then these may not be erased.
Condo Or Cooperative Housing Fee Debts
Fees from homeowner associations, condo, or cooperative housing fees cannot be discharged.
Attorney Fees Relating To Child Custody Or Support, Other Court Fines OR Penalties including Criminal Restitution
These fees and fines cannot be erased in Chapter 7 bankruptcy.
Certain Credit Card Purchases
If you made credit card purchases totalling more than $650 in aggregate during the 90 days before you filed for bankruptcy and these debts are owed to just one creditor, then they cannot be erased in Chapter 7 bankruptcy if the creditor successfully challenges their discharge. If they do not challenge then they will be erased.
Fraudulently Obtained Debts
Fraudulently obtained debts cannot be erased if the creditor successfully claims.
Debts Obtained Under False Pretences
Debts obtained through false pretences cannot be erased if the creditor successfully claims.
Debts That The Filer Occurred Because Of Willful And Malicious Injuries To People Or Property
These also may not be discharged if the creditor makes a successful claim.
Can The Court Refuse To Discharge?
If you do not cooperate during the bankruptcy procedure or comply with any rules. If you commit perjury or do not account for lost assets, destroy records, hide property, or try to defraud creditors in any way, then the judge may refuse to discharge your debts.
In these circumstances, the trustee, creditors or the U.S. treasury can all object to your discharge.
The court may not grant a discharge if you are making too many filings within too short a time. With Chapter 7 filings you cannot file twice within 8 years. With Chapter 13 you can file a second time within two years of the last Chapter 13 file.
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