A bankruptcy is a legal proceeding involving an individual or a business who are unable to make any remaining payments on their outstanding debts. The most common way to file a petition for bankruptcy is the one done by the debtor. It provides an opportunity for the creditors to receive payments. Bankruptcy can allow for a brand new start for your finances, but it will remain on your credit for several years and make it difficult to borrow money in the future. 

Bankruptcy proceedings occur in the federal courts under a bankruptcy judge that evaluates the individuals assets that are eligible for repayment on the debts incurred. There are different types of bankruptcies that can be filled under the various chapters of bankruptcy law. Depending on which one is filled, there is a difference in what is considered as a non-dischargeable debt. If the proceeding is successful, all past debts are forgiven except the non-dischargeable debts.  

A non-dischargeable debt is a type of debt that is not forgiven even after a successful bankruptcy proceeding. A bankruptcy court can determine what additional debts can become non-discharge based on various circumstances. Therefore, it is important to fully understand the basics of non-dischargeable debts and determine if you need additional guidance in figuring them out with the help of an experienced bankruptcy attorney. 

What Are the Most Common Non-Dischargeable Debts?

There are typically three categories of non-dischargeable debts:

  • Some debts are not discharged unless you can successfully argue that they should be; 
  • Some debts are not discharged but only if a creditor successfully argues that they should not be and; 
  • Some debts are never discharged (non-dischargeable).  

From these categories, you can determine whether your debt falls under any. The debts that will never be discharged or also known as non-dischargeable debts which include:

  • Student loans; 
  • Federal, state and local taxes; 
  • Any money borrowed on a credit card to pay those taxes; 
  • Any fines or penalties for breaking the law. For the other debts that you want the court to discharge, you must convince them. For some, you may need to meet a specific legal exception to be discharged;
  • Child support or alimony;
  • Personal injury debts arising out of a drunk driving accident;
  • Debts arising out of tax-advantaged retirement plans and;
  • Condo or cooperative housing fee debts; 

Lastly, the creditor can also create a non-dischargeable debt if they can justify to the court why the debtor should still owe it. Creditors must request the court to determine if the debts are dischargeable or not. If the creditor fails to raise the dischargeability issue or the creditor raises the issue but the court disagrees these debts will be discharged. 

These debts can include credit card purchases for luxury goods, cash advances, debts obtained by fraud or false pretenses. For example, You will not be able to discharge a debt caused by intentionally injuring someone or someone’s property.

Does the Debtor Have an Absolute Right to a Discharge?

No, the debtor does not have an absolute right to a discharge. If there is an objection to the debtor’s discharge, a case may be filed by a creditor, trustee in the case or by the U.S trustee. Then, the creditos will receive a notice that has all the important information with dates and deadlines to meet for the case. If there is an objection, the creditor may file a complaint with the court bankruptcy court before the state deadline for timeliness. 

Additionally in some cases, the bankruptcy court may deny a discharge for a debtor’s lack of compliance with rules or procedure. For example, if you defraud creditors, the court may not discharge your debts, even though they are otherwise dischargeable. Moreover, creditors, the bankruptcy trustee, or the U.S. Trustee are allowed to object to your discharge. However, the bankruptcy court will have the final say.

Discharges may also be denied if you file bankruptcy too frequently within a short time period. For example, if you file successive Chapter 7 cases, you will not receive a discharge in the second case if it is within eight years of the filing date for your first case.

When you are filing under two different chapters, the order determines the duration for when to receive a discharge in the second case. For example, if you file for Chapter 13, you cannot file under Chapter 7 and obtain a discharge within six years from the date you filed your Chapter 13 case. This is generally the case but there can be certain exceptions. 

If you file Chapter 7 and obtain a discharge, you cannot have a second discharge in a Chapter 13 case filed within four years of your Chapter 7 filing. These are some examples of the complexities surrounding the filing under the different chapters for bankruptcy. Therefore, it is highly recommended to seek advice from a professional bankruptcy attorney to understand your situation and what plan best suits your circumstances. 

Can a Creditor Still Collect after a Discharge?

No, generally a creditor may not collect after there has been a discharge order recorded by the bankruptcy court. If a creditor still collects after a discharge, the debtor can file a motion with the court to address this matter. It is important to ensure that the discharge order is not violated. The bankruptcy court’s discharge order constitutes a permanent statutory injunction prohibiting creditors from taking any action on the case. 

This includes the filing of a lawsuit and it is designed to collect discharged debt. If a creditor does not abide by the order they can be sanctioned by the court for violating the discharge injunction. Generally, the penalty for violating the discharge injunction is civil contempt, which is often punishable by a fine.

Do I Need a Bankruptcy Lawyer?

If you have outstanding personal or business related debts that you are struggling to make payments for, it is important to seek advice about filing for bankruptcy if it becomes necessary to do so.  An experienced bankruptcy lawyer is highly recommended to navigate you through the filing process and assist with identifying any non- dischargeable debts as needed. 

Even if you have non- dischargeable debts, it does not necessarily mean that you cannot file for bankruptcy as a financial relief. Many of those who have filed, have found that non-dischargeable debts were easier to pay after getting rid of their other unsecured debts. 

For instance, if you owe any student loans or income taxes, you may be able to reach an agreement with these creditors for an affordable payment plan after bankruptcy. This would help tremendously in paying off other bills such as medical, credit cards or other personal bills. It is never too late to consider your options when dealing with a financial turmoil and work to resolve it. It is better to strategize and create a financial plan that can assist in paying off the debts with the help of a bankruptcy lawyer.