Understanding Which Debts Can Be Discharged in Personal Bankruptcy

Bankruptcy provides a legal process for individuals to alleviate overwhelming debts. However, not all debts are discharged in bankruptcy. Understanding which debts can and cannot be discharged is crucial for anyone considering bankruptcy. This article will explore the factors and common misconceptions related to discharging debts in personal bankruptcy.

Common Misconceptions and Scream Or Die Rule

Many people believe that certain debts cannot be discharged in bankruptcy, leading to common misconceptions. For instance, child support and tax debts are often thought to be ineligible for discharge. However, it’s important to note that in many cases, these debts might be dischargeable under the right circumstances. The ‘scream or die’ rule refers to situations where a creditor must quickly file a lawsuit in the bankruptcy or face the debt being discharged. This applies, for example, to damages incurred through criminal misconduct.

Types of Dischargeable Debts

Most debts can be discharged in bankruptcy, making it easier to identify which ones cannot. Here are some common types of dischargeable debts, grouped by chapter of bankruptcy:

Chapter 7 Bankruptcy

Unsecured Debts: Credit card debt, medical bills, personal loans, and payday loans. Secured Debts: While secured debts like mortgages and car loans are not automatically discharged, a debtor might be able to surrender the property and have the remaining balance discharged. Taxes: Certain types of taxes may be dischargeable if they meet specific criteria.

Chapter 13 Bankruptcy

Secured Debts: Debtors can create a repayment plan to catch up on mortgage arrears or car loan payments. Unsecured Debts: Credit card debt and medical bills can be included in the repayment plan, but the debtor may not be required to pay the full amount. Taxes: Some income tax debts may be dischargeable, but this varies by case. Domestic Support Obligations: Child support and alimony are not dischargeable, but they can be included in a repayment plan. Student Loans: Generally not dischargeable, but in cases of extreme hardship, a portion might be included in the repayment plan.

Secured debts and domestic support obligations are not generally dischargeable, while fraud-related debts and criminal restitution orders are also not dischargeable. Understanding these distinctions can help individuals make informed decisions about bankruptcy.

Non-Dischargeable Debts

Some debts are not dischargeable in either Chapter 7 or Chapter 13 bankruptcy. Here are the most common types:

Non-Dischargeable Debts

Domestic Support Obligations: Child support and alimony are typically not dischargeable. Certain Taxes: Recent income tax liabilities are generally not dischargeable. Student Loans: In most cases, student loans are not dischargeable unless the debtor can prove extreme financial hardship, which is a high threshold. Debts Incurred through Fraud: Debts arising from fraudulent activities like credit card fraud are usually not dischargeable. Criminal Restitution: Debts related to criminal restitution orders are generally not dischargeable.

It is crucial to consult with a bankruptcy lawyer to understand the specific circumstances and legal recourse available to you. These issues can be complex, and experienced bankruptcy lawyers can provide valuable guidance. If you need this help, it may be more expensive, but it can save you from potentially much larger financial setbacks that arise from misunderstanding what debts can and cannot be discharged.

Key Takeaways

Most debts can be discharged in bankruptcy, but it is often easier to identify which ones cannot be discharged. Understanding the 'scream or die' rule and common misconceptions can help clarify which debts might be dischargeable in certain circumstances. Secured debts, domestic support obligations, and criminal restitution orders are generally not dischargeable. Consulting with an experienced bankruptcy lawyer is essential to understanding the specific circumstances and legal options available.

To learn more about bankruptcy and how it can help alleviate your debt, consult with a qualified bankruptcy attorney. Finding a knowledgeable and experienced lawyer can provide the guidance needed to navigate this complex process.