Will Bankruptcy Leave You Debt Free? It Could…But Doesn’t Always
Bankruptcy can seem to work miracles for many people, and can be the key to a fresh start and a new financial future. But the myth that you will walk away from bankruptcy owing nothing to anybody isn’t quite true—at least, not for all people.
There is a certain category of debts that are not dischargeable in bankruptcy. You may not have any of these debts—for you, the “myth” of walking away from all your debts may actually be a reality. But some filers have some of these debts.
If you do have some of these debts, and they can’t be discharged, bankruptcy may still be worth your time. Discharging your dischargeable debts may leave you the extra funds you need to pay off your nondischargeable debts. Additionally, you may be able to “catch up” on nondischargeable debts that you are behind in paying through a Chapter 13 bankruptcy.
What Debts Can’t be Discharged?
Any debt that you incur within 90 days of filing for bankruptcy that is over $650 is considered nondischargeable. This is generally limited to luxury items. Using credit to pay for gas, food, or housing will often not draw any criticism (although it should still be avoided at all costs within 90 days of filing for bankruptcy).
Any type of domestic support, which includes alimony or child support, but may include property division as well, if it is used as support, is not dischargeable.
Student loans, although in some cases hardship can be shown, which will allow these loans to be dischargeable.
Criminal restitution, criminal fines, and any personal injury judgment against you as a result of drunk driving cannot be wiped out.
Any judgment or penalty entered against you as a result of fraud, or as a result of injuring someone willfully, intentionally or maliciously cannot be discharged.
Some fines or penalties entered against you by government entities cannot be discharged—but not all government debt is nondischargeable. Some debt can be discharged, but generally, fines and penalties cannot.
Back income taxes that are recently assessed cannot be discharged—but taxes that are older than three years old can be discharged, as long as certain other requirements are met.
Secured loans can be discharged, but the lien cannot. In other words, you can discharge your personal obligation to pay the loan—but the property that is secured by the loan, like your home or your car – can still be repossessed or foreclosed on if the loan is in default and not paid.
Some of the above categories are not dischargeable no matter what without any further action by the creditor. Other categories have to be challenged by way of an adversary proceeding to be considered nondischargeable—meaning that if the creditor remains silent, the debt may be discharged.
Remember that none of your debts can be discharged if you lie or try to defraud the court. Additionally, if you have filed a previous bankruptcy, and you haven’t waited the required amount of time to refile, your discharge can be denied.