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Archive for the ‘dischargeable debts’ tag

What Debts Are Not Dischargeable in a Texas Bankruptcy?

December 13th, 2019 at 9:46 am

TX bankruptcy attorney, TX chapter 7 lawyerFiling for bankruptcy is often the last resort for many people. If you successfully file for bankruptcy and your debts are discharged, it can affect your current and future finances for years, which is why people do not typically get a bankruptcy unless they absolutely have to. For most forms of bankruptcy, receiving a discharge of your debts is typically the end goal. Most debts can be discharged or forgiven in a bankruptcy, but there are certain types of debts that either cannot be discharged or will not be discharged based on certain circumstances.

Student Loans

When it comes to student loan debt, it is almost never automatically discharged in a bankruptcy. If you are looking to have your student loans forgiven, you must prove to the court that making your student loan payments would cause you undue hardship. To do this, you have to prove that making your student loan payments would not allow you to maintain a minimal standard of living, you will likely be in a tight financial situation for the remainder of your student loan repayment period and you have made a decent number of payments in good faith on your loans.

Taxes

For the most part, federal, state and local taxes are not dischargeable in bankruptcy. However, there are certain situations in which you may be able to have your tax debts forgiven if you file for a Chapter 7 bankruptcy. To do this, you must prove that all of the following five criteria are true:

  • The tax return in question was due at least three years ago;
  • The tax return was filed at least two years ago;
  • The IRS assessed your tax at least 240 days prior to the filing of the bankruptcy;
  • Your tax return was not fraudulent; and
  • You are not guilty of tax evasion.

Domestic Support

Domestic support that you owe to a spouse or child will never be discharged in a bankruptcy. If you have a legal obligation to pay spousal support or child support payment, you will still be held to that obligation after a bankruptcy.

Consult With a San Antonio, TX Bankruptcy Discharge Attorney

Getting a bankruptcy, whether that bankruptcy is a Chapter 7 or Chapter 13, can be a fresh start for most because of the ability to have your debts discharged or forgiven. If you have certain specific types of debt, you may not be able to have those discharged in a bankruptcy. At the Law Offices of Chance M. McGhee, we can help you analyze the types of debt that you are in and determine whether or not you would be able to have those debts discharged if you were to file for bankruptcy. Let our Kerrville, TX bankruptcy discharge lawyers help you make the right decisions for your financial future. Call our office today at 210-342-3400 to schedule a free consultation.

 

Sources:

https://www.thebalance.com/what-is-non-dischargeable-in-a-bankruptcy-case-316130

https://www.investopedia.com/terms/n/nondischargeable_debt.asp

https://www.law.cornell.edu/uscode/text/11/523

A Scenario about Debts from a Vehicle Accident

September 19th, 2016 at 7:00 am

One example how debts from a vehicle accident, involving possible drunk driving, are handled in bankruptcy.  

  

 

Our last blog post made the point that if someone injures another person by driving while legally intoxicated, bankruptcy can’t write off the financial obligations for the injuries. Sounds pretty straightforward.

But let’s give you a scenario that shows how this works, and may not be quite that straightforward.

The Scenario

Two years ago you were in a vehicle accident, involving one other driver and her vehicle, no passengers. You drove fast through a stop sign without stopping, broadsiding the other vehicle on the driver’s side. Fortunately the point of impact was behind the driver, so she was significantly injured but not nearly as bad as she could have been. Even more fortunately there were no passengers in the back seats.

However you were quite badly hurt, requiring a couple surgeries and 6 months of rehabilitation.

Both vehicles were totaled. The other driver was driving a 2013 Mecedes-Benz S600, with a used blue book value of $85,000.

It happened at a rural intersection on a Saturday night while you were returning from a party. You’d had a number of drinks at the party but felt only slightly impaired as you’d left.

The police took long to arrive on the scene because of the accident’s remote location. By the time a state trooper arrived, you were quite sober and in shock. You showed no impairment so the trooper did not test your blood alcohol level.

You were found to be 100% at fault because you later admitted that you simply hadn’t noticed the stop sign.

You had vehicle insurance coverage but only to the minimum legal amounts.

Now 2 years later, both drivers have fully recovered. But you owe a lot of money. After insurance has paid up to the coverage limits, you owe as follows:

1. $170,000 in unpaid medical bills for yourself

2. $55,000 for her medical bills and related personal injuries

3. $85,000 for the other driver’s totaled Mercedes-Benz

Plus, you owe $95,000 in other debts because of not being able to work for many months while you recuperated.  You meet with a competent bankruptcy lawyer to get advice.

The Lawyer’s Advice

Because you know it’s smart to be honest and thorough with your lawyer, you tell her about your drinking before the accident. You show her the traffic citation for running the stop sign, with nothing about driving under the influence.

Your lawyer tells you that as long as you are never accused of being legally intoxicated in this accident, you will be able to discharge (legally write off) all three of the accident related debts.

The Three Accident-Related Debts

First, you can discharge (legally write off) your own $170,000 in medical bills regardless of issues of impairment.

Second, in bankruptcy you can’t discharge debts for another’s personal injuries resulting from you unlawfully operating a vehicle while intoxicated. See Section 523(a)(9) of the U.S. Bankruptcy Code. That could potentially pertain to the $55,000 you owe for the other driver’s medical and other related expenses.

Your blood alcohol content may or may not have been above the legal threshold. There is no hard evidence that you were impaired at the time of the accident. Given the lack of a blood alcohol test near the time of the accident, it would be quite difficult (although maybe not impossible) to find evidence showing that you were impaired.

If you ran the stop sign simply because you were tired or distracted, the debt would be discharged. Debts for personal injury resulting from negligence can be discharged in bankruptcy.

Your lawyer tells you that there is a very small chance that the other driver (or its insurance company or yours) would try to show that you were lawfully impaired at the time of the accident. Assuming there would be no such successful attempt, the $55,000 debt would be discharged.

Third, regarding the other driver’s $85,000 vehicle, the inability to discharge drunk driving debt applies only to debts related to personal injuries. It does not apply to claims against you for property damage, such as for the replacement of a vehicle. So here the $85,000 debt for the Mercedes-Benz would be discharged even if you were driving while unlawfully impaired.

The Bottom Line

Even though there’s some small risk that the bankruptcy discharge of the $55,000 personal injury debt could be challenged, that appears unlikely. So it would likely be discharged. The other two accident-related debts—for $170,000 and $85,000—would almost certainly be discharged in bankruptcy.

“Priority” Debts for Injuries from Driving while Intoxicated

September 16th, 2016 at 7:00 am

If you injured someone by unlawfully driving while intoxicated, the resulting obligation can’t be discharged in bankruptcy.  

 

Our last 5 blog posts have been about how bankruptcy deals with “priority” debts. The specific types of priority debts we’ve focused on so far are child/spousal support, wages owed employees, and income taxes. See Sections 507(a)(1),(4), and (8) of the U.S. Bankruptcy Code.

Today we look at another type of priority debt, one that many people don’t realize is a priority one. It is the newest priority debt, described as such by Congress in the last major overhaul of the Bankruptcy Code in 2005.

Unlawful Operation of a Vehicle while Intoxicated

The Code’s definition for this type of debt is a claim “for death or personal injury resulting from the operation of a motor vehicle or vessel if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.”

So, if you drive while legally intoxicated, causing injury or death, that party’s claim against you is a priority debt.

So What? What Does It Matter?

There are two main legal consequences, one under Chapter 7 and one under Chapter 13.

First, under a Chapter 7 “straight bankruptcy” case your trustee pays your priority debts in full before paying other debts. But usually all of your assets are “exempt,” protected from bankruptcy trustee liquidation. So there’s no money for the trustee to pay any creditors, including the priority debts. So there’s no practical benefit to the driving-while-intoxicated debt being a priority debt in that situation.

Second, under a Chapter 13 “adjustment of debts” your court-approved payment plan must “provide for the full payment” of all debts “entitled to priority.”  So you have to budget enough to pay off the driving-while-intoxicated debt during the case’s 3 to 5 years. You can and must pay that in full before paying anything on non-priority unsecured debts. But if that debt is very large, you may not have enough disposable income to pay it off in time. As a result a Chapter 13 case may not be feasible.

“Priority” vs. “Nondischargeable” Debts

But there’s another angle to this that’s probably even more important. One big theme of these last few blog posts has been whether a debt that is a priority debt also cannot be discharged (forever written off).

For example, all unpaid child/spousal support is priority debt, with the Chapter 7 and Chapter 13 consequences outlined above. And support also can never be discharged.

But some priority debts CAN be discharged. To use the example of our most recent blog post, if you owed unpaid wages to a former employee, that could be a priority debt. But most likely that type of debt would be dischargeable. If you filed a Chapter 7 case, the debt would likely be discharged.

How about debts for driving while intoxicated?

They’re like support obligations: they are both priority debts and nondischargeable.

The language from the Bankruptcy Code quoted above making these debts priority ones is very similar to language elsewhere in the Code making them nondischargeable. So, you can’t discharge a debt “for death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.” Section 523(a)(9).

The Bottom Line

Debts from driving while intoxicated can’t be discharged under either a Chapter 7 or 13. They must be paid in full within a Chapter 13 plan. These are a highly favored type of debts under the law.

Are “Priority Income Tax Debts Discharged in Chapter 7 Bankruptcy?

September 12th, 2016 at 7:00 am

Income tax debt may be discharged—legally written off—in a Chapter 7 case. It just needs to meet some conditions.

 

Our last blog posts have been about “priority” debts, such as child/spousal support and income taxes. A key point has been that your Chapter 7 trustee pays priority debts ahead of your other debts. But that’s irrelevant if the trustee doesn’t have any money to pay ANY of your debts. And that’s what happens in most Chapter 7 cases. That’s because in most cases everything the debtor owns is protected through property exemptions.

But some of the priority debts are also “nondischargeable”—they cannot be written off in bankruptcy. That’s always relevant—you definitely want to know whether a debt will be discharged or instead you will still need to pay it.

Priority vs. Dischargeable Debts

Because some priority debts are not dischargeable but some are, this can get confusing. For example, a child/spousal support debt is always a priority debt and simultaneously is always not dischargeable. But an income tax debt is a priority debt only under certain conditions. That very same debt would not be discharged under similar but not exactly the same conditions. Yes, it’s confounding!

Luckily, all we care about here is whether an income tax can be discharged or not. So we’ll give you the main rules, and a practical example to make sense of this.

The Main Rules for Discharge of Income Taxes

We’ve got to emphasize that there is more to this than what we’re about to say. But the following is a good start.

To discharge an income tax in bankruptcy, that tax must meet both of 2 conditions:

  • More than 2 years must have passed between the date that you submitted the tax return to the IRS or state tax agency and the date you file your bankruptcy case.
  • More than 3 years must have passed between the legal due date for that tax return and the date you file your bankruptcy case.

There are other conditions but they seldom come into play. (Your bankruptcy lawyer will review them with you to make sure, but they’re not worth getting into here.)

Example

Assume that you are considering whether to file bankruptcy in mid-September 2016 when this blog post is being written. You owe federal income taxes for the 2011, 2012, and 2013 tax years, $5,000 each year, a total of $15,000. You filed all three years of tax returns on April 15, 2014 (the due date for the 2013 income tax, which was late for the other 2 earlier years of taxes). Are these three years of taxes dischargeable now or not?

You meet the 2-year rule for all three tax years—April 15, 2014 is more than 2 years ago.

You meet the 3-year rule for 2011 and 2012—their tax returns were due in April 2012 and April 2013, respectively, more than 3 years ago.

So those two years of taxes, totaling $10,000, would very likely be discharged in a Chapter 7 bankruptcy. They meet both the 2-year and 3-year rules.

However, the 2013 tax return was due on April 15, 2014 (regardless when it was filed). Since that’s less than 3 years ago, the 2013 tax debt does not meet this necessary condition. So that $5,000 debt would NOT be discharged in a Chapter 7 case.

At least not yet. It may or may not be worth waiting to file bankruptcy long enough until that final $5,000 tax debt could be discharged. But DON’T act on this without having an experienced bankruptcy lawyer review this carefully with you. As mentioned above, there might be some other conditions that could come into play. You would hate to incur the risks and disadvantages of waiting only to find out that waiting didn’t do you any good.

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