Most clients find that a bankruptcy discharge eliminates the vast majority of the debt the client owes to creditors. While some debts survive a bankruptcy filing, most clients are able to drastically reduce or eliminate their debt entirely through bankruptcy. It should also be noted that the types of debts that are dischargeable in bankruptcy vary somewhat in a Chapter 7 as opposed to a Chapter 13. The lists of dischargeable and non-dischargeable debts below are not designed to be comprehensive, but rather are a useful starting point to determine what general debts are dischargeable in a client’s bankruptcy case under most circumstances.
Examples of Dischargeable Debts (Debts that can be eliminated):
- Credit Cards
- Bills for Professional or other Services (including medical and legal bills)
- Debts that are Unsecured (e.g. Personal IOUs and Most Business Debts)
- Deficiency Judgments
- Most lawsuit Judgments (except drunk driving or sometimes malicious acts)
- Some tax debts (income taxes that became due more than 3 years before filing)
- Amounts owed on Property (but lien still exists, so lender can still foreclose usually)
Examples of Non-Dischargeable Debts (Debts that cannot be eliminated):
- Student Loans (except in very rare circumstances involving extreme hardship)
- Most types of Taxes (Some income tax debts, property taxes, some government fines)
- Debts where you Defrauded the Court or Creditors
- Debts from Embezzlement, Larceny, or Breach of Fiduciary Duty (If creditor objects)
- Debts arising from your Willful and Malicious Actions (If creditor objects)
- Debts for Luxuries incurred within 90 days of your Filing (if they exceed certain amount)
- Debts you Obtained through a False Statement of Financial Condition (If creditor objects)
In addition to the above types of dischargeable and non-dischargeable debts, some types of debts are dischargeable in Chapter 13 bankruptcy, but not in Chapter 7 bankruptcy.
Examples of Debts Dischargeable Only In Chapter 13 Bankruptcy:
- Marital debts in accordance with a divorce settlement agreement
- Debts you Incurred to pay non-dischargeable taxes
- Court fees
- HOA dues incurred after your Bankruptcy Filing
- Debts you Borrowed from your own Retirement Plan
- Debts not discharged in a previous Bankruptcy
While the above lists are not comprehensive examples of all debts that can be dischargeable and non-dischargeable in bankruptcy, we hope that this discussion will lead to informed choices regarding your legal options regarding your debt. If you choose to seek legal counsel regarding a debt or have further questions, a Nova Law Group attorney will be happy to assist you.
