Understanding Nondischargeable Debts: Support, Fraud, and Recent Loans
One of the most common misconceptions about personal bankruptcy is that a discharge wipes out every debt a person owes. In reality, the Bankruptcy Code carves out specific categories of debt that survive bankruptcy no matter which chapter a person files under. Knowing which debts fall into these categories before filing can shape both the decision to file and the strategy behind it.
What “Nondischargeable” Means
A nondischargeable debt is one that remains legally collectible even after a bankruptcy court grants a discharge on the rest of a person’s obligations. These exceptions are listed in Section 523 of the Bankruptcy Code, and they exist because Congress decided that certain obligations, or certain conduct behind how a debt was incurred, should not be erased simply because the debtor filed for bankruptcy relief.
Domestic Support Obligations
Child support and spousal support, along with related obligations owed to a spouse, former spouse, or child, are not dischargeable in bankruptcy under any chapter. This applies whether the support obligation arises from a divorce decree, a separation agreement, or a court order, and it applies regardless of whether the debt has been reduced to a judgment. Bankruptcy simply is not a tool for eliminating support arrears.
Debts Tied to Fraud
Debts obtained through false pretenses, a false representation, or actual fraud are excepted from discharge as well. This most often comes up when a creditor argues that a debtor lied on a credit application, misrepresented their financial condition to obtain a loan, or otherwise induced a creditor to extend money, property, or services through deception. Because fraud has to be proven, these disputes are frequently litigated through an adversary proceeding inside the bankruptcy case, where the creditor carries the burden of showing the debtor’s intent at the time the debt was incurred.
Recent Loans and Purchases: the Presumption Problem
The Bankruptcy Code also singles out certain debts incurred shortly before a bankruptcy filing. Under current dollar thresholds, which are adjusted periodically for inflation, consumer debts to a single creditor totaling more than 900 dollars for luxury goods or services within 90 days of filing are presumed to be nondischargeable, and cash advances exceeding 1,250 dollars within 70 days of filing carry the same presumption. The idea behind this rule is straightforward: running up new debt on non-essential purchases right before a bankruptcy filing looks a lot like an attempt to get something for nothing, and the law shifts the burden to the debtor to show otherwise. This is one of the reasons the timing of a bankruptcy filing matters and should be discussed with an attorney rather than decided based on when a person happens to feel ready.
Why This Matters Before You File
Debts that will not be discharged should factor into whether bankruptcy makes sense at all, and if it does, which chapter and what timing best fits the situation. A person with substantial support arrears or a large debt tied to a fraud allegation may still benefit from bankruptcy to clear other obligations, but they need a realistic picture of what will still be owed on the other side of a discharge.
If you are weighing bankruptcy and want to understand which of your debts would actually be eliminated, our West Palm Beach bankruptcy lawyers can review your specific debts and explain how the nondischargeability rules apply to your case. Reach out to Kelley Kaplan Delaney & Eller, PLLC to get a clear answer before you file.
Source:
law.cornell.edu/uscode/text/11/523
