What Debts Can I Eliminate in a Chapter 7 Bankruptcy?

Dischargeable Chapter 7 Debts

You’ve hit rock bottom financially, and now you need to know more about the bankruptcy system. Bankruptcy is our legal system’s solution for debts that have amounted to something more than one can pay. The system alleviates massive financial pressure from debtors in a jail-free, characteristically American way. Most people want all their debt to go away, and most of it can indeed be erased if one files for bankruptcy, but some of it still sticks around. This article gives insight into the dischargeable debts of Chapter 7 Bankruptcy, the most common type of bankruptcy.

What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is the most common form of personal bankruptcy. When one successfully files for Chapter 7 Bankruptcy, the majority of debts (including Credit Card Debt, Foreclosure Debt, Business Debt, Repossession Debt, etc.) are immediately put under an automatic stay (11 U.S. Code § 362 – Automatic Stay) which forbids the creditors from taking any steps to collect the debts from you including calling you, sending collection letters, filing a lawsuit or garnishing your checking account or income.

What is a Discharge?

Most people file for bankruptcy in hopes that most or all of their debts will be discharged (11 U.S. Code § 727 – Discharge), meaning essentially erased. When a debtor’s debts are discharged, the debtor no longer has any legal obligation to pay off the debts to the creditors. Creditors are also prohibited from pursuing the payment of any of the debts in any way, including harassment, and can be punished if continued pursuit occurs.

What Debts Can I Usually Discharge Under Chapter 7?

Federal law determines what a bankruptcy discharge is (11 U.S. Code § 727 – Discharge) and what Commonly dischargeable debts include:

• current and past due medical bills
• personal loans for money borrowed from friends, family, and employers
• past due bills for utility services of all types
• past due debts and bills in collections
• auto accident claims, unless the accident was the result of driving under the influence of alcohol
• money owed under a lease, including past due rent
• debts related to the operation of a business
• non-sufficient fund checks, unless found to be fraudulent
• some student loans, but only under very restricted circumstances
• deficiency claims on repossessed property (examples: automobiles, furniture)
• civil court judgments unless they are determined to be the result of fraud
• income taxes, interest and penalties for unpaid taxes that meet certain requirements
• attorney’s fees unless the fees are in the nature of support or are for child support or alimony
• credit card debts, past due bills, late fees and interest
• revolving charge accounts, which are similar to credit cards
• over-payment of social security benefits
• over-payment of veterans benefits, and
• veterans assistance loans

What Debts Can I Usually Not Discharge Under Chapter 7?

Some debts are not dischargable in any event.  Other debts are not able to be discharged if they successfully challenged in bankruptcy court in an adversary proceeding. But if no-one challenges the debt with an  adversary proceeding, or if they do and they are unsuccessful, then the debt can be discharged (fraud being the most common example). However, in general the following debts are usually considered to be non-dischargeable in a Chapter 7 bankruptcy case:

• Fraud
• Child Support
• Larceny
• Court fees
• Willful and Malicious acts
• Embezzlement
• Certain retirement plan payments
• Recent Income Taxes, Penalties and Interest
• Taxes that are not income taxes
• Certain condominium and apartment fees
• Divorce property settlements
• Debts resulting from defalcation, which in general is the misappropriation of funds by a person with a fiduciary responsibility for the funds.
• All of your creditors must be listed on the schedule handed in at the inception of the case. Debts owed to any creditors not listed will automatically become non-dischargeable debts.
• Student Loans: Student loans can be discharged, but only under particular conditions. The exact legal phrasing is student loans can be discharged only if they impose an undue hardship on the debtor. It is very difficult to meet the conditions necessary for a judge to qualify one as undergoing an undue hardship. Essentially, you have to be able to prove that not only would paying the loans cripple you in your current financial state, you must also prove that your future financial state would be crippled, and you really do have the good intent to pay the loans back. This is very hard to prove in most cases.

Debts that are non-dischargeable are covered under Federal law:  11 U.S. Code § 523 – Exceptions to Discharge

Divorce Settlements

As stated above, divorce settlements are usually non-dischargeable. These debts include alimony and child support. The conditions under which these debts become dischargeable are similar to the conditions in which student loans become dischargeable.

Income Tax Debts: Federal and State

Income tax debts are usually non-dischargeable unless you meet all of the following criteria. There must have been no fraud or tax evasion involved, the tax return was filed more than 2 years before your bankruptcy petition, the taxes were due at least 3 years before the bankruptcy was filed, and tax liability was assessed more than 240 days before your bankruptcy petition was filed.  There are exceptions to the rules listed here, so it is best to consult with an experienced Cumming Georgia bankruptcy attorney before assuming your income tax debts are dischargeable.

Dischargeability Under Other Types of Bankruptcy

Some debts that are non-dischargeable under chapter 7 bankruptcy may be dischargeable under other types of bankruptcy. For example, chapter 13 bankruptcy provides the potential to discharge marital loans (alimony and child support), court fees, retirement plan payments, and condominium fees. Just because debts are dischargeable or non-dischargeable under one type of bankruptcy doesn’t mean they’re dischargeable or non-dischargeable under all types of bankruptcy.

Non-dischargeability Under Other Types of Bankruptcy

No type of bankruptcy will be able to provide help for loans incurred under criminally reckless acts. These include debts arising out of someone’s injury caused by your negligence and fines incurred from breaking the law. In addition, debts incurred from intentional torts and intentional criminal behavior will not be dischargeable. For example, personal injury claims for assault or attempted murder would not be dischageable in a Chapter 7 bankruptcy case.

Experienced Cumming Georgia and Forsyth County Bankruptcy Attorneys

Filing for bankruptcy is a measure for dire situations that isn’t the perfect option for everybody. To see if you’re eligible for Chapter 7 Bankruptcy and to see if filing for Chapter 7 Bankruptcy is the right option for you, call 770-709-1247 to speak with one of our experienced Cumming Georgia bankruptcy attorneys today.