What debts are not discharged in bankruptcy?
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Non-dischargeable debts are debts that must be repaid even if the debtor files for bankruptcy. Under Chapter 7 bankruptcy law, the assets that you have which are not considered exempt are sold and the proceeds from those sales, as well as any cash or savings accounts that are part of the bankruptcy estate will be used to repay your creditors. At the end of this repayment period, there are usually some debts on which you still owe a balance. If those debts are dischargeable, then that balance is "discharged" or forgiven. If the debts are not dischargeable, you will continue to owe a balance at the end of the bankruptcy on the non-dischargeable or “unwashed” debts.
How Bankruptcy Courts Determine which Debts Are Dischargeable
Congress has determined that the following types of debt are not dischargeable in a Chapter 7 bankruptcy for public policy reasons:
- Taxes (subject to specific rules), government fines, penalties
- Spousal support (alimony)
- Child support
- All student loans
- Secured debts
- Personal injury damages arising from driving while drunk
- Debts from fraud, larceny, embezzlement
- Punitive damage claims for "willful and malicious" acts (such as assault or libel)
- Debts not listed on your bankruptcy papers (this depends on the law in the federal circuit court jurisdiction)
- Debts for last-minute purchases of luxury goods or services and cash advances placed on a credit card just before bankruptcy
- Another class of debts or claims called "liens" that are backed by property.
These debts are generally considered not dischargeable because of public policy reasons (bankruptcy should not allow a debtor to avoid paying for his child's upbringing or for the consequences of his drunk driving mistake) or because of the nature of the debt. Taxes and student loan debts, for example, are given special protection. After the Chapter 7 bankruptcy case has concluded, the bankruptcy filer must still pay these debts.
Getting Help with Bankruptcy
Filing bankruptcy can be a complex process. It is in your best interests to consult with an experienced bankruptcy attorney for help and advice as early as you can during the bankruptcy process to ensure your rights are protected.