Please welcome Stacy Barbee from Oak View Law Group for today’s guest post on debts you can’t discharge in bankruptcy.
“Today, certain people file for bankruptcy, business and individuals, and it no longer has the stigma it once had. Now it’s almost considered wise, a way to regroup and come back again.” – David Dinkins, former mayor of New York City
Bankruptcy, a popular debt solution, allows you to pay most debts and make a fresh financial start. But, there are a few kinds of debts that aren’t dischargeable. This means you can’t get rid of a few kinds of debts in bankruptcy. If you’re planning to file bankruptcy (especially without getting any help from an attorney), then it’s important to know about the debts that aren’t dischargeable. Otherwise, you might apply for bankruptcy unnecessarily and end up wasting time and money.
Debts That Can’t Be Discharged
1. A car you bought recently
Have you purchased a car or an expensive piece of jewelry before filing bankruptcy? If so, then you have two options. The first option is to continue making payments to the lender. The second option is to give up the item. Remember, you have signed an agreement. You have promised to make payments for using the item. If you fail to do so, then the lender can snatch away the item from you.
What else you can do
You can surrender the car or the expensive jewelry to the lender. This way you won’t have any liability to make payments to the lender. The lender has given you the item. He/she has a security interest. You can’t keep using the car without paying a penny to the lender.
2. Income tax
Most people think about bankruptcy to discharge unpaid income tax. It isn’t impossible to discharge income tax in bankruptcy. But there is a strict eligibility criterion, which you need to fulfill.
You can discharge tax debts in bankruptcy under the following circumstances:
- You have income tax debts
- You didn’t file a fraudulent tax return
- You didn’t try to avoid filing income tax return intentionally
- Your tax debt is 3 years old
- The IRS has assessed your income tax debt 240 days before you filed bankruptcy
3. Debts you omitted in an asset case
You have to list all your debts in bankruptcy. If your case is an asset case, then the debts that are not listed are non-dischargeable. An asset case is the one where you have money to distribute amongst creditors.
4. Debts you owe to the government
Have you been penalized or fined by the government? If so, I’m afraid bankruptcy can’t give you any relief. No one can give you any relief. You have to pay the fines and penalties or they will stay with you till your last breath. If you have more questions regarding government debt and how it will be treated in bankruptcy, then consult an attorney.
5. Student loans
Millions of students and parents would have given a sigh of relief if student loan debts could be eliminated through bankruptcy. Unfortunately, in most cases, they can’t be discharged in bankruptcy proceedings. Private student loans, federal student loans, loans taken out from a school or university all can’t be kicked out by filing bankruptcy.
Yes, there are exceptions.
You can discharge student loans in one way, and that is by passing the Brunner Test. This test is used to determine if you’re under extreme financial hardship due to your student loan debt. Your debts may be discharged if you can prove:
- It won’t be possible for you to maintain a minimum standard of living if forced to repay student loans. Your current financial situation doesn’t allow this.
- You have tried your best to pay off student loan debts.
- Your financial hardship is likely to continue due to some additional circumstances for a long period.
There’s yet another situation when you can discharge student loans. This is when you can prove that you can’t work again due to permanent disability.
The bottom line is: it is very difficult but not impossible to discharge student loan debt in bankruptcy.
6. Child support and alimony
Child support payments and alimony aren’t dischargeable in bankruptcy. These two basically comprise the amount your child or ex-spouse needs for covering basic living expenses. Debts you owe due to marital property division don’t come under this kind of support. In a few states, these debts are dischargeable in bankruptcy.
What else you can’t discharge in bankruptcy
The list of non-dischargeable debts is not finished yet. There are several other kinds of debts that are non-dischargeable and these are:
- Debts you owe for violating security rules and regulations
- Certain condominium dues and fees
- Specific property laws
- Debts that were considered non- dischargeable in previous bankruptcy
- Debts you incurred for causing a malicious injury
- Money that you owe to retirement plans and pensions
- Debt you owe due to a wrongful death caused by you for driving a vehicle under the influence of alcohol or drugs
The Bottom Line
Don’t try to act too smart when it comes to bankruptcy. Don’t play dirty tricks. Your debts won’t be discharged in that case. Be honest. Be accurate. If you have debts that are usually not discharged but can be discharged under special circumstances, then consult an experienced attorney. He/she can analyze your situation and give you an idea about your chances of getting success. Act as per the guidelines given by your attorney. Otherwise, your bankruptcy case might be dismissed.