A common question that people in financial trouble who are considering bankruptcy want to know is "What debts will be eliminated if I file bankruptcy?" The answer to that question can be rather complicated and a bankruptcy attorney should be contacted to evaluate each debtor's debt individually, but bankruptcy laws tell us which categories of debt cannot be discharged. Almost all unsecured debts are discharged in bankruptcy, so it is much easier to discuss which debts will not be erased.
The following types of debt are never dischargeable in bankruptcy. In a Chapter 7 bankruptcy, these debts will remain when the case is completed. In a Chapter 13 bankruptcy, these debts will have to be paid in full during the payment plan, and if they are not, the remaining balance will survive after the plan is paid out.
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1. Debts you forget to list in your bankruptcy papers
2. Child support and alimony
3. Student loans
4. Fines and penalties imposed for violating the law
5. Recent income tax and all other tax debts
The above dischargeable unsecured debts are relatively straight-forward except the tax debts which require further explanation. All tax debts and recent income tax must be paid. The only exception to this is that in a Chapter 7 filing, income tax may be discharged if and only if all of the following 5 criteria are met:
1. The IRS has not recorded a tax lien against your property. If all of the other 4 conditions are met, then the taxes can be discharged, but even after the bankruptcy, the lien will remain against the property which gives the IRS a way to still collect the debt
2. The debtor did not file a fraudulent return or try to evade paying the tax
3. The liability is for a tax return filed at least two years before the bankruptcy is filed
4. The tax return was due at least three years before the bankruptcy is filed.
5. The taxes were assessed meaning a notice of assessment of federal taxes was received from the IRS at least 8 months prior to filing bankruptcy.
In addition to the above debt that is never dischargeable in bankruptcy, there are some additional debts which can be declared non-dischargeable by a bankruptcy judge in a Chapter 7 bankruptcy if a creditor or the Trustee himself makes a motion. In a Chapter 13 bankruptcy, these debts will be paid out in the payment plan.
1. Debts you incurred on the basis of fraud
2. Credit purchases of $500 or more for luxury goods or services made within 90 days of filing
3. Loans or cash advances of $750 or more taken within 70 days of filing
4. Debts from willful or malicious injury to another person or another person's property
5. Debts from embezzlement, larceny, or breach of trust
6. Debts you owe under a divorce decree or settlement. This will not be discharged unless after bankruptcy the debtor would still not be able to afford to pay them and the benefit that would be received by the debtor at discharge would outweigh any detriment to the ex-spouse
The above discussion about the types of unsecured debt that are not dischargeable in a bankruptcy is general and for informational purposes only. The dischargeability of certain debts is a very complicated portion of bankruptcy law, and if you are considering bankruptcy, you should consult with a bankruptcy attorney so that he or she can evaluate your individual situation and inform you of which debts you will be able to discharge and which ones you will be obligated to continue paying.
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