The purpose of you filing an individual bankruptcy case is to end creditor harassment by eliminating or managing your debts. Debts that can typically be eliminated include those arising from credit cards, medical bills, bank loans, judgments, auto and home loan deficiencies and rent arrears.
The ultimate goal in any individual bankruptcy case is for you to receive a discharge of your debts. A discharge is an order granted by the bankruptcy court and it releases you, as an individual debtor, from personal liability for your debts incurred prior to you filing your bankruptcy case. It also prevents creditors owed those debts from taking any collection actions against you in the future. In other words, you are no longer legally required to pay any debts that are discharged.
In a Chapter 7, the court usually grants the discharge 60 days after the 341(a) Meeting of Creditors. Typically, this means you will obtain a discharge about four months after filing your Chapter 7 petition. In a Chapter 13, a debtor will be granted a discharge upon the completion of all payments under the confirmed chapter 13 plan. In addition, the debtor in a Chapter 13 case will receive a slightly more inclusive discharge than a debtor under chapter 7.
But your discharge is not without exceptions. Certain types of debts are generally not allowed to be discharged by the debtor under the Bankruptcy Code. And under certain circumstances, there may be grounds to deny the debtor’s discharge completely.
Non-dischargeable debts –a creditor may claim that the debtor performed certain bad acts toward the creditor while incurring the debt and that such act or acts should cause the particular debt to be excluded from the debtor’s discharge. There are also certain types of debts that may not involve bad acts (e.g., certain taxes and student loans) that are non-dischargeable under the provisions of the Bankruptcy Code for public policy reasons.
Certain debts are determined to be non-dischargeable under the Bankruptcy Code and require no action on the part of the creditor, while others require the creditor to file an action (an Adversary Proceeding) within the debtor’s bankruptcy case for the court to determine.
Any “educational loan” that is either made, insured, or guaranteed by a governmental unit or made under a program funded in whole or in part by a governmental unit or nonprofit institution or that is a qualified education loan as defined in section 221(d)(1) of the Internal Revenue Code of 1986 is not dischargeable. Any educational benefit loan made, insured, or guaranteed by a governmental unit or made under a program funded in whole or in part by a governmental unit or nonprofit institution is not dischargeable. There is an exception when repayment of the loan will impose an “undue hardship” on the debtor and the debtor’s dependents.
Alimony and Support Obligations
Domestic Support Obligations – All domestic support obligations are non-dischargeable. “domestic support obligation” is defined in the Bankruptcy Code as alimony, maintenance and support (among other things).
Income tax claims that are not dischargeable include:
- 3-Year Rule – those taxes for which a return was last due within three years of the filing of your bankruptcy case;
- 240-Day Rule – those taxes assessed within 240 days of the filing of the filing of your bankruptcy case;
- Assessability Rule – those taxes that are still assessable after the filing of your bankruptcy case; or
- 2-Year Rule – Income tax for which no return was filed or a return was filed within two years of filing your bankruptcy case; or
with respect to a fraudulent return or willful attempt to evade tax.
- Trust Fund Taxes – Generally, trust fund taxes (e.g., sales, employee withholding, collections by lottery agents) are not dischargeable.
- Luxury Goods or Services – A consumer debt owed to a single creditor, aggregating more than $500.00 for luxury goods or services, incurred within the 90 days prior to the filing of the bankruptcy, is presumed to be non-dischargeable.
- Cash Advances – Cash advances aggregating more than $750.00 made within the 70 days before the filing of the bankruptcy are presumed non-dischargeable.
Denial of the General Discharge
When the debtor has committed some bad act during the course of the bankruptcy proceeding or failed to list or schedule property of the bankruptcy estate, the creditor may file an adversary proceeding (must) seeking to have the debtor denied a discharge from all debts.
These acts include:
- Transferring or concealing property from the trustee,
- Failing to keep records of financial transactions and of property,
- Making a false oath within the bankruptcy, and
- Failing to explain a loss of assets.