The objective of both Chapter 7 and Chapter 13 bankruptcy is to obtain a “discharge” of debts. If the bankruptcy court discharges your debts in bankruptcy, it means that you will be no longer be held personally liable for these debts. Most consumer debt, including medical bills and credit card bills, is dischargeable. Certain debts, however, are non-dischargeable, meaning they cannot be wiped out through bankruptcy. These are debts that Congress has decided should not be able to be discharged for public policy reasons.
There are 19 categories of non-dischargeable debt. In other words, when you receive a discharge of your consumer debts, creditors will still be able to collect these categories of debts. Some non-dischargeable debts are not subject to a hearing, while other non-dischargeable debts will be discharged if a creditor does not challenge that they are dischargeable.
Generally, you will have to show extraordinary circumstances to get these debts discharged, and they are generally non-dischargeable:
- Debts that you left off your bankruptcy petition, unless the creditor actually knew of your filing;
- Many types of taxes;
- Child support or alimony;
- Fines or penalties owed to government agencies;
- Student loans;
- Personal injury debts arising out of a drunk driving accident;
- Debts arising out of tax-advantaged retirement plans;
- Condo or cooperative housing fee debts;
- Attorneys’ fees for child custody or support; and
- Criminal restitution and other court fines or penalties.
Other categories of non-dischargeable debts require a creditor to successfully challenge your discharge during the bankruptcy in order to be non-dischargeable. The court will hold a hearing that allows both the bankruptcy filer and the creditor to present their arguments. However, if the creditor fails to object, or if the court disagrees with the creditor, the debt will be discharged. These categories are credit card purchases for luxury goods worth more than $650 in aggregate that were made during the 90 days preceding the bankruptcy filing and are owed to a single creditor, fraudulently obtained debts or those obtained under false pretenses, and debts incurred because of willful and malicious injuries either to person or property.
Can the Court Deny a Discharge?
In some cases, the bankruptcy court will deny a Chapter 7 discharge for a debtor’s lack of compliance with rules or procedure. For example, if you commit perjury, fail to account for lost assets, destroy records, or hide property to defraud creditors, the court may not discharge your debts, even though they are otherwise dischargeable. Moreover, creditors, the bankruptcy trustee, or the U.S. Trustee can object to your discharge. However, the bankruptcy court has the final say.
Discharges may be denied if you file bankruptcy too frequently within an impermissibly short window of time. For example, if you file successive Chapter 7 cases, you cannot receive a discharge in the second case if it is within eight years of the filing date for your first case. If you file successive Chapter 13 cases, you cannot obtain a second discharge within two years from the date you first filed for Chapter 13 bankruptcy.
When you are filing under two different chapters, the order determines how long you must wait to receive a discharge in the second case. For example, if you file for Chapter 13, you cannot file under Chapter 7 and receive a discharge within six years from the date you filed your Chapter 13 case, with certain exceptions. If you file Chapter 7 and receive a discharge, you cannot receive a second discharge in a Chapter 13 case filed within four years of your Chapter 7 filing.