The Bankruptcy Discharge

The primary reason a person files bankruptcy is to obtain a discharge which is a court order that prohibits creditors from further collecting from the debtor the pre-petition debts that were owed to them. It’s an injunction that enables the debtor to have a fresh start. In exchange for the discharge, the Code requires Debtors to follow certain procedures and rules; there is no absolute right to a discharge. When a debt is non-dischargeable it means that the creditor can continue collecting from you after the case is over.

Reasons Why You Could be Denied a Chapter 7 Discharge Altogether

Section 727(a) of the Bankruptcy Code outlines reasons why a court may deny a discharge in a Chapter 7 case and all of the reasons are connected with a debtor’s obligation to comply with rules and procedures. If a debtor fails to follow the rules then a creditor, trustee, or the U.S. trustee can object to the entire discharge. If the court agrees with the complaining party and denies a discharge, then none of your debts are discharged – even those that were otherwise dischargeable under the Code.

A debtor that engages in the following conduct jeopardizes his or her opportunity to obtain a discharge:

  • Fails to complete a personal financial management course post-petition
  • Transfer, conceal, hide, destroy or mutilate property with the intent to defraud, hinder or delay your creditors. This applies to the debtor’s property up to one year before filing the petition and to property of the bankruptcy estate after the petition is filed.
  • Conceal, destroy, falsify or fail to keep or preserve books and records.
  • Commit perjury in connection with your case
  • Fail to turn over documents to the trustee (this includes tax documents)
  • Cannot account for lost or missing assets
  • Fail to obey a court order
  • Previously filed a bankruptcy case and were granted a discharge in that case within a certain period of time (amount time depends on the type of case you previously filed).

Debts that are Always Non-Dischargeable in Chapter 7

The Bankruptcy Code (11 U.S.C. §523) lists 19 categories of debts that are non-dischargeable. Some of those debts require a court to make a determination that the debt cannot be discharged; other types of debts do not. The following debts are usually deemed automatically non-dischargeable:

  • Certain taxes
  • Unscheduled debt (debt you failed to list on the bankruptcy petition or include on the mailing matrix) unless the creditor had actual notice or knowledge of your bankruptcy. A majority of courts have held that dischargeable debts that were mistakenly not listed in no-asset cases can still be discharged. However, some courts have departed from the majority view and this area of law may change.
  • Debts for a domestic support obligation (child or spousal support or alimony)
  • Debts owed to a former spouse in connection with a divorce or separation
  • Debts owed to the government for fines and penalties
  • Student loans
  • Debts for a personal injury that the debtor caused in connection with a DUI
  • Debts owed for restitution
  • Debts for certain condo or HOA fees (those that become due after you file your petition)
  • Debts owed to certain retirement plans (401k loans, for example)

Debts that are Non-Dischargeable if a Creditor Successfully Objects to the Discharge of the Debt

Other types of debt require a creditor to seek a judicial determination that their debt is not dischargeable. Typically, a creditor must file an adversary action – a separate lawsuit within a debtor’s bankruptcy – in order to raise that issue before the court for a ruling. In this situation, the dischargeability of the debt depends on whether or not the creditor wins.

Some categories of debt that require a creditor to file an action include:

  • Debt obtained by fraud
  • Consumer debt owed to a single creditor totaling more than $650 in the 90 days prior to filing for luxury goods
  • Cash advances totaling more than $925 obtained by the debtor within 70 days before filing your petition
  • Debt for fraud, or defalcation while acting in a fiduciary capacity, embezzlement or larceny
  • Debt for willful and malicious injury to another person/entity or to property belonging to another person/entity.

A Chapter 13 Discharge is Broader

The discharge that a debtor receives at the completion of his or her plan in a chapter 13 case is broader than the discharge he or she receives in a chapter 7 case. Essentially, the list of non-dischargeable debt is smaller in Chapter 13. The following are non-dischargeable in chapter 13:

  • Cure & maintain debts. If the plan provides for the cure and maintenance of long-term debt, such as a mortgage, then the personal liability on the mortgage is not discharged in the chapter 13 case.
  • Certain taxes
  • Domestic support obligations (alimony and child support)
  • Student loans
  • Unscheduled debt
  • Debt obtained by fraud (requires an adversary determination)
  • Debt for fraud, or defalcation while acting in a fiduciary capacity, embezzlement or larceny (requires an adversary determination)
  • Debts for a personal injury or death that the debtor caused in connection with a DUI
  • Criminal fines and restitution
  • Restitution or damages awarded in a civil case against a debtor as a result of willful or malicious injury by the debtor that cause personal injury or death to another individual.

Debts Dischargeable in Chapter 13 but Not in Chapter 7

The following is a list of some of the debts that can be discharged upon the completion of a Chapter 13 case but not in a Chapter 7 case:

  • Certain recent taxes (but not a collection or withholding liability) as well as debts incurred to pay taxes. Note, while they may be dischargeable these debts are also likely to be priority debts which you are required to pay in full.
  • Debts owed to a former spouse in connection with a divorce or separation which are not in the nature of support.
  • Debts associated with the willful and malicious injury to another, except where damages or restitution have been awarded in a lawsuit for personal injury or death.
  • Fines and penalties owed to a governmental entity other than for criminal fines.
  • Debts dating from a previous bankruptcy where the debtor’s discharge was denied.

If you have questions about the types of debts you owe and whether or not you could benefit from filing bankruptcy then please contact us at (208) 733-2035 to set up an initial consultation. We are located in downtown Twin Falls, Idaho and we are here to help you.