What Is Nondischargeable Debt?
Nondischargeable debt is a type of debt that cannot be eliminated through a bankruptcy proceeding. Such debts include, but are not limited to, student loans; most federal, state, and local taxes; money borrowed on a credit card to pay those taxes; and child support and alimony.
Nondischargeable Debt Explained
Some additional debts may be nondischargeable, but only if the creditor objects to the discharge. These include debts arising from a martial settlement or divorce decree; debts incurred based on fraudulent acts; debts from willful and malicious acts to another person or another person's property; and debts from embezzlement, larceny, or a breach of fiduciary responsibility.
Ways NondischargeableDebts Are Determined
Many nondischargeable debts are deemed so because they may stem from acts of malfeasance on the debtor’s part. There may be errors of omission as well that fall in this category. For example, unscheduled debts, which refers to any debt that was not listed in the bankruptcy petition, may be nondischargeable. Exceptions to this are possible, particularly if the creditors had knowledge of the bankruptcy filing and took no action.
Under Chapter 7 of the Bankruptcy Code, other types of nondischargeable debt include payments owed for personal injury caused by the debtor while intoxicated and operating a motor vehicle. Creditors can also dispute charges that the debtor wants to remove through bankruptcy. If the court approves such objections, those debts will become nondischargeable.
This includes credit card purchases owed to a single creditor for luxury goods that exceed certain dollar amounts that were procured within 90 days of the bankruptcy filing. However, if the debtor can prove they intended to repay the creditor or that the purchases were not luxury items, the court may allow the debt to be discharged. Cash advances above a certain dollar amount that were received within 70 days of a bankruptcy filing may also be nondischargeable debt.
There are additional circ*mstances under Chapter 7 under which the court could declare debts as nondischargeable. This includes instances when the debtor destroys records of their finances, transfers property in an effort to hide it from creditors, if the debtor does not fulfill the completion of a course in personal finance management, or if the debtor cannot account for certain missing assets.
There may be instances where a debtor previously filed for bankruptcy and had debts discharged. This could be grounds under their latest bankruptcy for their debts to be declared nondischargeable, dependent on the type of bankruptcy that was filed and the time frame.
FAQs
What Is Nondischargeable Debt? Nondischargeable debt is a type of debt that cannot be eliminated through a bankruptcy proceeding. Such debts include, but are not limited to, most student loans; most federal, state, and local taxes; money borrowed on a credit card to pay those taxes; and child support and alimony.
What does it mean to discharge a debt? ›
Discharge (of debts) refers to the process in bankruptcy court, when a debtor is no longer liable for their debts, and the lender is no longer allowed to make attempts to collect the debt. The court will issue a decision to discharge debts.
Why is student loan debt not dischargeable? ›
Under the Brunner test, you can only discharge student loans if: Repaying the student loans would result in you and your dependents living in poverty and make you unable to maintain even a basic standard of living; Your situation will continue over a substantial portion of the student loan repayment period; and.
Which of the following debts are dischargeable? ›
Dischargeable debts are those debts that can be eliminated through the bankruptcy process, meaning that the debtor is no longer legally obligated to repay them. In a Chapter 7 bankruptcy, most unsecured debts can be discharged, including credit card debt, medical bills, personal loans, and certain types of taxes.
What kind of conduct may make some debts non dischargeable? ›
Wrongful conduct may make some debts non-dischargeable. Examples of such conduct are incurring credit card charges without the intent or ability to repay, or obtaining loans using false financial information.
What are 3 examples of exempt assets that Cannot be taken from you? ›
Exempted property in a bankruptcy can include the car you need to drive to work and to the store for food. It can include the tools you need to do your job. It can include the house in which you live, and the furniture and appliances and other household goods that make the house your home.
Can discharged debt be sold? ›
Once that decree is granted, your creditors can no longer legally sell the discharged debts. If a debtor contacts you in an attempt to collect a discharged debt, you should forward a copy of your discharge decree to the debtor.
What happens after debt is discharged? ›
When a debt is discharged, the debtor is no longer liable for the debt and the lender is no longer allowed to make attempts to collect the debt. Debt discharge can result in taxable income to the debtor unless certain IRS conditions are met. A debt discharge occurs when a debtor qualifies through bankruptcy court.
Can discharged debt be removed from credit report? ›
How Long Discharged Debts can Appear on Your Credit Report. If you see debts, even marked as empty or discharged, for longer than seven years, you'll need to take measures to have these debts removed or discover who illegally sold your debt to renew and lengthen the time limit.
Do student loans get forgiven after 10 years? ›
Seeking forgiveness under Public Service Loan Forgiveness (PSLF)? The PSLF Program forgives the remaining balance on your Direct Loans after you've satisfied the equivalent of 120 qualifying monthly payments (10 years) under an IDR plan while working full-time for an eligible employer.
Your loan may be fully discharged, and you will not have to repay any portion of your loan. All collection activity will stop. Your loan may be partially discharged, and you will still be required to repay some portion of your loan.
Do student loans go away after bankruptcies? ›
Your student loans will not be automatically discharged if your bankruptcy is approved. You have to take special steps in the bankruptcy case to ask the judge to discharge your student loans. This is done by filing a petition for an adversary proceeding.
What type of debt Cannot be erased? ›
While the specifics vary somewhat among the different chapters, the most common examples of non-dischargeable debts are: Alimony and child support. Certain unpaid taxes, such as tax liens. However, some federal, state, and local taxes may be eligible for discharge if they date back several years.
What are the categories of debts that Cannot be removed or discharged? ›
Key takeaways. Loans, medical debt and credit card debt are generally all able to be discharged through bankruptcy. Tax debt, alimony, spousal or child support and student loans are all typically ineligible for discharge.
What is the difference between dischargeable debts and non dischargeable debts? ›
Post-petition debts—the new bills that you incur after you file your initial bankruptcy paperwork—don't qualify for discharge. You'll remain responsible for paying for them. The only type of debt eligible for discharge is "pre-petition debt," or, debt that existed before you filed your matter.
What is an objection to dischargeability of debt? ›
A trustee's or creditor's objection to the debtor being released from personal liability for certain dischargeable debts. Common reasons include allegations that the debt to be discharged was incurred by false pretenses or that debt arose because of the debtor's fraud while acting as a fiduciary.
What are dischargeable and non dischargeable debts? ›
Some common dischargeable debts include credit card debt and medical bills. Other debts such as domestic support and tax obligations are generally non-dischargeable due to public policy reasons. 11 U.S.C.A. § 523 lists out exemptions to dischargeable debts and non-dischargeable debts.
What are three examples of a dischargeable debt? ›
For instance, Chapter 7 bankruptcy covers or "discharges" credit card balances, medical bills, past-due rent payments, payday loans, overdue cellphone and utility bills, car loan balances, and even home mortgages in as little as four months.
