The scope of the discharge is different in each chapter. The
Bankruptcy Code makes the Chapter 13 discharge more encompassing, to encourage individuals
to use Chapter 13 to repay a portion of their debts. In other words, most unsecured debts
are dischargeable. Some debts are also dischargeable under Chapter 7 bankruptcy. If a debt
is discharged, this means that you no longer have to pay the debt, which is deemed cancelled.
Certain debts, however, are not dischargeable by an individual in a Chapter 7 bankruptcy.
Other debts that are normally dischargeable may be denied a discharge because of wrongful
actions of the debtor. One of the creditors may petition the court to deny the discharge
on one specific debt, or on the entire bankruptcy, leaving the debtor without relief from
creditor claims.
Actions that
make debts non-dischargeable
An individual debtor may be denied a discharge of debts for
the following reasons:
hiding or destroying assets to hinder, delay or defraud a creditor
failing to keep financial records or hiding or destroying financial records
refusing to comply with an order of the bankruptcy court
failing to provide a credible explanation for missing assets
having had debts discharged in a Chapter 7 proceeding within the preceding 6 years
refusing to obey a court order
Non-dischargeable
debts
Debts that are non-dischargeable generally fall into the following
categories:
Individual income taxes, state or federal, that are assessed within three years
of the filing but remain unpaid. Older taxes are dischargeable.
Individual income tax liabilities are generally dischargeable if:
The bankruptcy petition is filed more than 3 years after the due date of the
tax return involved - use the extended date rather than the due date if you filed
an extension
The tax return involved has been filed more that 2 years prior to the petition
The taxes you want discharged have been assessed as an audit deficiency for
more than 240 days
Tax penalties for non-filing, late payment, and negligence penalties are generally
dischargeable if the underlying tax to which the penalties relate are dischargeable.
Also, the taxpayer must not have filed a fraudulent return or otherwise willfully tried
to evade payment of tax.
Debts that have been incurred by the use of false financial statements or other
false pretenses.
Unscheduled debts that the debtor failed to schedule on the bankruptcy petition.
Debts that arise from fraud or embezzlement, or from the misuse of funds when the
debtor was acting as a fiduciary. Embezzling money from a trust fund over which the
debtor has control is an example of a debt that cannot be discharged.
Alimony, maintenance, and child support. Court ordered debt payments incurred during
the marriage are not dischargeable.
Any debt incurred from willful or malicious conduct
Fines and penalties
Most educational loans less than seven years old - although a hardship exception allows
a debtor to avoid certain educational loans.
Debts for luxury goods or cash advances in excess of $1,000 on credit cards, incurred
within 60 days of the bankruptcy. This is known as loading up.
Debts arising from a judgment incurred from a drunken driving conviction.
Withholding taxes due by you as an officer of a company.
Debts arising from the willful and malicious injury of another or his property.
Debts are not discharged under either Chapter 11 or 13. In each
instance the debts are only adjusted pursuant to a plan of repayment approved by a majority
of creditors and the court. The plan may call for a reduction in the various classes of
debt and/or an extension of time to pay the debts under the approved schedule. Any debts
in excess of those approved by the plan are discharged.
Your home
and automobile
It is not likely that you will lose either your home and automobile
in a Chapter 7 bankruptcy. However if you are behind in making payments on a loan and can't
reach a payment agreement with the creditor, or the home or automobile carries equity past
what you are allowed to exempt, then your home or car may be at risk. In that case, you
might consider filing a Chapter 13 petition, which allows you to develop a plan for repaying
all of your creditors without necessarily liquidating assets.
It is important that you be totally honest in preparing your
schedules and in handling your affairs both before and during the bankruptcy proceeding.
Only then can you be assured that your debts will be discharged through bankruptcy.
