Most consumer debtors file for bankruptcy protection to get a discharge of debt.
The discharge granted in chapter 7 and 13 bankruptcy cases does two things. First, the debtor is released of all legal liability for payment of the discharged debt.
Second, the creditors holding discharged debt are forever prohibited from attempting to collect the debt from the discharged debtor.
Not all debts may discharged in bankruptcy, however. The following is a list of the top 9 debts that are generally NOT DISCHARGED in bankruptcy:
- Most taxes. Not all taxes are non-dischargeable and careful analysis is required in connection with pre-bankruptcy planning to secure the broadest discharge of tax debt. Special provisions apply in chapter 13 cases.
- Debts incurred through false pretenses, fraud or false financial statements. These debts are only non-dischargeable if the relevant creditor objects to the dischargeability of the underlying debt and prevails in an adversary proceeding commenced within stringent time limitations.
- The claims of creditors not listed or scheduled by the debtor. This exception to discharge highlights the importance of listing all creditors and debts after a thorough and careful analysis of the debtor’s financial situation.
- Debts incurred through fraud or defalcation while acting in a fiduciary capacity, or embezzlement or larceny even if not in a fiduciary capacity. Like debts incurred through false pretenses, fraud or false financial statements, these debts are only non-dischargeable if the relevant creditor objects to the dischargeability of the underlying debt and prevails in an adversary proceeding commenced within stringent time limitations.
- Domestic support obligations. Alimony, maintenance and support are not dischargeable in bankruptcy under chapters 7 and 13.
- Debts incurred as the result of willful or malicious injury to another entity or the property of another entity. Like debts incurred fraud, this category of claims is otherwise dischargeable unless the relevant creditor objects to the dischargeability of the underlying debt and prevails in an adversary proceeding commenced within stringent time limitations. Special provisions apply in chapter 13 cases.
- Fines and penalties of a punitive, as opposed to a purely compensatory, nature are not dischargeable in bankruptcy, but certain fines and penalties may be dischargeable in chapter 13 cases.
- Student Loan Debt. In order for such debt to be discharged, the debtor must demonstrate that he/she and his or her dependents would suffer continuing undue hardship if the debtor were compelled to continue to pay student loan debt.
- Debts relating to personal injury or death incurred as the result of the operation of a vehicle while intoxicated.
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