Non-Dischargeable Debts in a Chapter 7 Bankruptcy

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In Chapter 7 bankruptcy, you pay off as many of your debts as possible, then discharge — wipe out — the rest. Unfortunately, there are some debts that Chapter 7 cannot discharge.

Chapter 7

When you file Chapter 7, you present the bankruptcy court with a list of your assets, income and debts. Everything you own becomes part of a bankruptcy estate. The trustee for your case liquidates your estate to pay your creditors. State and federal law exempts some of your assets from liquidation, but everything else must go. After the estate is gone, your remaining debts are discharged, then you emerge from bankruptcy and start over.

Tip

  • Each state adopts its own bankruptcy exemption rules. Nineteen states let residents use either the federal or the state list. Bankruptcy filers everywhere else have to use their respective states' exemptions. You can look up your state's policy online at the Nolo website.

Never A Discharge

Some debts aren't ever discharged in Chapter 7, including:

•Alimony and child support.

•Government agency-imposed fines and penalties.

•Court fines and penalties.

•Most student loan debts.

•Homeowners' association or condo association fees, or similar expenses.

•Debts for personal injury due to driving while intoxicated.

Discharge and Fraud

Debts someone runs up by fraud are a special case. For example, this category might include a loan someone received after making false statements about his financial situation. If he runs up large credit card bills for luxury items in the 90 days before filing Chapter 7, that also counts as fraud — it's assumed he counted on discharging the debts. If the creditor files an objection with the courts, fraudulent debts are non-dischargeable. If the creditor neglects to file, the discharge goes through.

Tax Debts

Income tax debt can be discharged in a Chapter 7 bankruptcy. However, other tax debts such as property taxes, payroll taxes and tax penalties are not dischargeable. Back income taxes don't get a discharge if they're less than three years old, or if they stem from fraud or tax evasion.

Debts Secured by Liens

Secured debts such as mortgages or car loans come with a lien on the property. If the borrower defaults, the lender seizes the collateral. You may be able to discharge the debt in bankruptcy, but you probably can't remove the lien. If you don't keep up the mortgage, for instance, the bank can still use the lien to take the house.

Warning

  • If you omit any debts from the information you file with the court, they won't be included in the bankruptcy discharge. This applies even it's a debt that would normally be wiped out.

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