What Debts Cannot Be Discharged in Bankruptcy?
Understanding which debts bankruptcy can and cannot eliminate in Ohio
For people struggling with debt, one of the most important questions about bankruptcy is simple: What debts will actually go away?
Chapter 7 and Chapter 13 bankruptcy can provide significant relief from many financial obligations, but bankruptcy does not erase every type of debt. Federal bankruptcy law treats certain obligations differently because of how the debt arose or the public policy behind requiring repayment.
Credit cards, medical bills, personal loans, and many other unsecured debts can often be discharged. Student loans, certain taxes, child support, alimony, criminal fines, and debts involving fraud may be much more difficult or impossible to eliminate.
Understanding the difference before filing is important. If most of your financial problems come from debts that cannot be discharged, bankruptcy may still help, but the strategy could look very different.
What Does It Mean to Discharge a Debt?
A bankruptcy discharge releases you from personal liability for qualifying debts. Once a debt has been discharged, creditors generally cannot continue trying to collect it from you.
Depending on your circumstances, a discharge can eliminate thousands of dollars in debt and make it possible to rebuild your finances without constantly trying to catch up on old obligations.
The debts that qualify depend partly on whether you file Chapter 7 or Chapter 13 bankruptcy, as well as the nature of each individual debt.
What Debts Can Usually Be Discharged?
Before looking at the exceptions, it helps to understand the types of debt bankruptcy commonly eliminates.
Dischargeable debts may include:
- Credit card balances
- Medical bills
- Unsecured personal loans
- Payday loans
- Old utility bills
- Certain lease obligations
- Collection accounts
- Certain civil judgments
- Deficiency balances after some repossessions or foreclosures
These are generally unsecured debts, meaning there is no property securing repayment.
Secured debts, such as mortgages and vehicle loans, are more complicated. Bankruptcy may eliminate your personal obligation to repay qualifying debt, but a creditor's lien on the property can survive. If you want to keep the property, you generally need to address the secured debt appropriately.
Are Student Loans Discharged in Bankruptcy?
Student loans deserve special attention because the answer is more complicated than the common belief that they can "never" be discharged.
Many student loan obligations are not discharged through an ordinary bankruptcy discharge. However, some borrowers may seek a student loan discharge by demonstrating that repayment would impose an undue hardship.
This generally requires additional proceedings within the bankruptcy case and an individualized review of the borrower's circumstances.
Because student loan discharge rules are different from ordinary unsecured debts, anyone considering bankruptcy primarily because of education debt should discuss the specific loans involved with an experienced bankruptcy attorney.
Even when student loans remain after bankruptcy, eliminating other debts may free up income that makes student loan payments more manageable.
Can Tax Debt Be Discharged?
Some tax debts can be discharged in bankruptcy, but many cannot.
Whether an income tax obligation qualifies depends on several factors, including:
- How old the tax debt is
- When the tax return was due
- When the return was filed
- When the tax was assessed
- Whether fraud or tax evasion was involved
Certain older income tax debts may qualify for discharge when specific requirements are satisfied. More recent tax obligations and certain other types of taxes generally do not.
Tax debt is one area where timing can have a major impact. Filing bankruptcy too early could potentially leave a tax obligation nondischargeable that might otherwise qualify later.
Before filing, it is important to review tax transcripts, filing dates, assessments, and other relevant information rather than assuming that all tax debt either will or will not disappear.
What Happens to Child Support and Alimony?
Domestic support obligations are generally not dischargeable in bankruptcy.
These commonly include:
- Child support
- Alimony or spousal support
- Past-due support payments
Bankruptcy does not eliminate the obligation to make current support payments, either.
Although bankruptcy generally cannot erase these debts, eliminating other dischargeable obligations may make it easier to keep up with support payments.
Chapter 13 can also be particularly relevant for someone who has fallen behind on domestic support obligations. A repayment plan may provide a structured way to address certain arrears while other qualifying debts are being managed.
Can Criminal Fines Be Discharged?
Many fines and financial obligations resulting from criminal proceedings cannot be eliminated through bankruptcy.
Examples may include certain:
- Criminal fines
- Penalties
- Restitution obligations
Bankruptcy is intended to provide relief from financial hardship, not eliminate punishment imposed through the criminal justice system.
The treatment of a particular obligation can depend on what the payment represents and how it was imposed, so the underlying judgment or court order should be reviewed carefully.
What About Debts Caused by Fraud?
Bankruptcy provides powerful debt relief, but it is not intended to protect someone from debts obtained through fraudulent conduct.
Certain debts resulting from fraud, false representations, or false pretenses may be declared nondischargeable.
For example, problems could arise when someone obtains money, property, services, or credit through intentional misrepresentation.
However, a creditor's allegation of fraud does not automatically mean a debt will survive bankruptcy. For certain exceptions, the creditor must take additional action in bankruptcy court and establish that the debt meets the legal requirements for nondischargeability.
If a creditor has accused you of fraud, disclose that issue to your bankruptcy attorney before filing.
Debts From Willful or Malicious Injury
Certain debts resulting from intentional harm may also be excluded from discharge.
This category is different from an ordinary accident or negligence claim. Bankruptcy law distinguishes between debts resulting from ordinary financial liability and those arising from certain intentional conduct.
The circumstances surrounding the underlying judgment or claim matter significantly when determining whether the debt can be discharged.
Are Debts You Forgot to List Discharged?
Failing to properly disclose a creditor can create unnecessary complications.
Bankruptcy requires a complete and accurate disclosure of your debts, assets, income, expenses, and other financial information. You should not intentionally leave a creditor off your bankruptcy paperwork because you would prefer to pay that creditor separately or because the debt is disputed.
The effect of an omitted debt can depend on the type of bankruptcy case, the nature of the debt, whether creditors received proper notice, and other circumstances.
The safest approach is to provide your attorney with information about every creditor and potential debt, even if you are unsure whether you still owe the money.
What Happens to Secured Debts?
Mortgages and auto loans require a different analysis because the lender typically has a lien against the property.
Suppose you owe $15,000 on a vehicle. A Chapter 7 discharge may eliminate your personal liability for qualifying debt, but it does not automatically eliminate the lender's security interest in the vehicle.
Depending on the situation, options involving secured property may include keeping the property and continuing to address the loan, reaffirming certain debt where appropriate, redeeming property in Chapter 7, surrendering the property, or using Chapter 13 to restructure how certain obligations are paid.
If keeping your home or vehicle is one of your priorities, that should be discussed before deciding which bankruptcy chapter to file.
Chapter 7 vs. Chapter 13: Does It Make a Difference?
Yes.
Chapter 7 bankruptcy is generally designed to eliminate qualifying debts relatively quickly. There is no three-to-five-year repayment plan, although nonexempt property can potentially be administered by the bankruptcy trustee.
Chapter 13 bankruptcy establishes a repayment plan that generally lasts three to five years. It can be useful when someone needs time to catch up on certain obligations, protect property, or address debts that will remain after bankruptcy.
For example, someone with substantial credit card debt plus nondischargeable obligations may benefit from eliminating the credit card balances so more of their future income can be directed toward the debts that remain.
This is one reason bankruptcy should be evaluated based on your entire financial picture rather than simply asking
whether one particular debt can be discharged.
Common Bankruptcy Myths About Dischargeable Debt
Myth: Bankruptcy eliminates every debt.
Fact: Several important categories of debt can survive bankruptcy, including many domestic support obligations and certain taxes, student loans, fines, and debts arising from particular misconduct.
Myth: Student loans can never be discharged.
Fact: Student loan discharge is difficult and requires additional analysis, but some borrowers may qualify under applicable bankruptcy standards.
Myth: No tax debt can be discharged.
Fact: Certain older income tax debts may qualify if the applicable requirements are satisfied.
Myth: If a debt survives bankruptcy, filing serves no purpose.
Fact: Eliminating other debts can substantially change your financial situation and make remaining obligations easier to manage.
Quick FAQ
What debts are easiest to discharge in bankruptcy?
Credit card debt, medical bills, unsecured personal loans, old utility bills, and many collection accounts are among the debts commonly discharged.
Can bankruptcy eliminate child support?
Generally, no. Child support and other domestic support obligations are typically nondischargeable.
Can bankruptcy eliminate back taxes?
Some older income tax debts may qualify, but strict requirements apply. Recent taxes and certain other tax obligations generally cannot be discharged.
Can bankruptcy eliminate student loans?
Some student loans may be discharged when the borrower satisfies the applicable legal requirements, including the undue-hardship standard where it applies. This generally requires additional proceedings beyond the ordinary bankruptcy discharge.
What happens if most of my debts cannot be discharged?
Bankruptcy may still provide meaningful relief. Eliminating qualifying credit cards, medical bills, loans, and other debts can free up money to address obligations that survive the bankruptcy.
Understanding What Bankruptcy Could Eliminate for You
The value of bankruptcy depends on much more than the total amount you owe. The type of debt matters.
Someone carrying $50,000 primarily in credit card and medical debt may face a very different bankruptcy outcome from someone who owes the same amount primarily in recent taxes, child support, or other nondischargeable obligations.
Before filing, identifying each debt and determining how it will be treated can help you decide whether Chapter 7, Chapter 13, or another strategy makes the most sense.
The Law Offices of Karen E. Hamilton helps individuals and families in Columbus and throughout Central Ohio understand their bankruptcy options. Attorney Hamilton can review your debts, explain which obligations may be discharged, and help you determine whether bankruptcy provides the fresh start you need.
To discuss your financial situation with an experienced Ohio bankruptcy attorney, call The Law Offices of Karen E. Hamilton at (614) 443-7920 or contact us online.
