For the majority of debtors who declare bankruptcy, the goal is to obtain a discharge from their outstanding debts.
Typical debts that are dischargeable include:
- Medical bills
- Credit cards
- Auto loan deficiencies
- Personal loans and
- Personal guarantees of business debt
However, there are a number of debts that are Nondischargeable or cannot be discharged simply by filing for bankruptcy. The Nondischargeable debts can be found in 11 U.S.C. §523.
List of nondischargeable debts in bankruptcy include:
- Domestic support obligations
- Certain tax liabilities
- Student loans
- Debts owed as a result of some kind of “bad behavior” on the debtor’s part
Domestic support obligations
A domestic support obligation (DSO) is generally defined as debts owed to a spouse, former spouse, or child of the debtor for alimony, maintenance or support (including assistance provided by a governmental unit such as the State Department of Human Resources).
However, there are certain debts that may arise in the context of a divorce through a property settlement. These debts might be a way to equalize payments for a division of property or an obligation to indemnify an ex-spouse from debts to others that the debtor is expected to pay.
These obligations are most likely to be determined Nondischargeable in a Chapter 7, but they can be discharged in a Chapter 13.
Tax liabilities
Most income tax debt incurred within 3 years of the bankruptcy filing is considered Nondischargeable. The time frame to determine dischargeability begins 3 years from the date that the tax return was due to be filed if filed timely.
If the return was filed late, then the debt can be discharged no less than 2 years from the date that the tax was assessed by the IRS or the State. This is why it is extremely important for debtors to timely file their tax returns before filing for bankruptcy.
Sales taxes and the trust fund portion of payroll taxes are also considered Nondischargeable in bankruptcy. So, debtors who own a business would be wise to stay current with these types of taxes and ensure that these taxes are paid first.
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Student loans
Even with the federal government’s willingness to forgive up to $20,000 for certain qualified applicants, the majority of federally insured student loans are Nondischargeable.
However, if you can prove that repayment of the student loan imposes an “undue hardship” on you and your dependents, you can bring an adversary proceeding in the bankruptcy case and attempt to discharge the student loan.
Also, there have been a number of recent court decisions that have determined that Private Student Loans can be discharged without having to prove “undue hardship”.
“Bad behavior” debts
Then, there is a group of debts that may survive bankruptcy if the creditor files a non-dischargeability action in the bankruptcy case and proves that the debt is the result of some listed kinds of “bad behavior” on the debtor’s part, including:
- Fraud
- Misrepresentation
- Conversion
- Embezzlement
- Breach of fiduciary duty
- Willful and malicious injury
If the creditor can prove that the debt was created by or resulted from any of these kinds of conduct on the debtor’s part, the debt will be Nondischargeable in any chapter. However, debts incurred because of a willful and malicious injury can eventually be discharged in a Chapter 13.
Consult an experienced Alabama bankruptcy lawyer
If you are struggling to pay your debts and concerned about the future welfare of you and your family, it’s important that you seek the advice of an experienced bankruptcy lawyer to ensure that your assets are protected and the debts you seek to eliminate are dischargeable.
Steven D. Altmann has been assisting consumers and business owners with debt relief through bankruptcy filing for over 30 years. Steve has earned an AV rating from Martindale-Hubbell’s peer-review rating and was recently named a Super Lawyer and Top Attorney by Birmingham Magazine in the area of Bankruptcy Law.
Meet Your Bankruptcy Attorney, Steve Altmann
“I am a bankruptcy attorney in Birmingham, AL. For over 30 years, I have helped individuals, families, and business owners file for bankruptcy relief so they can get a fresh start.
If you have never been through bankruptcy, the process may be confusing and intimidating. I will explain the process and help you identify which type of bankruptcy solution is right for you.
Let’s set up a time to talk. You’ll learn how bankruptcy can stop the calls and erase debt you no longer want to carry.”
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