Any debtor contemplating filing bankruptcy should ask themselves these most basic questions first- Which of my debts will be discharged in bankruptcy and which debts cannot be discharged in bankruptcy? While there is no written discharge in bankruptcy definition, the following debts cannot be discharged in bankruptcy.
- Child support
- Most student loans
- Some federal income taxes
- All employer withholding taxes
- Some debts that were not properly listed by the debtor
In addition, wrongful conduct by the debtor in incurring the debt can render a debt non-dischargeable. Examples include debts for personal injuries or death caused by the debtors operation of a motor vehicle while intoxicated, incurring credit card debt without the ability or intent to pay and obtaining credit through fraudulent information. However, some of these debts can be discharged unless the creditor brings an adversary proceeding within the bankruptcy case to get the Judge to order that particular debt non-dischargeable.
Unlike all the other debts previously mentioned, a debtor can intentionally make a debt non-dischargeable. Why would a debtor do this? They would do it because the debt is tied to a piece of collateral the debtor wants to retain. The most typical example is a home or a car, where the debtor reaffirms the debt by voluntarily signing an agreement to keep the debt obligation in exchange for continued use of the collateral. Reaffirmations should not be entered into lightly, especially because the debtor can sometimes retain the collateral without signing the reaffirmation agreement.
It is important to note that bankruptcy debt is different in a Chapter 13 than a Chapter 7. For instance, reaffirmation only applies to a Chapter 7. Another example is it is irrelevant to a Chapter 13 debtor who completes the Chapter 13 repayment plan that its child support arrears are non-dischargeable since the debt would necessarily have been paid in full already by the debtor if it is receiving a Chapter 13 discharge.
So what should the debtor take from all this? Part of determining which is the appropriate bankruptcy chapter for the debtor revolves around the debtors ability to discharge certain debts. For example, if the debtor is overwhelmed by student loan payments, the debtor would not file Chapter 7 to cure this problem, since the student loans would not be discharged. However, the debtor might file Chapter 13 to make the student loan payments more economical while understanding that the debt is not discharged. The same applies to past due domestic support obligations or non-dischargeable taxes.