How Are Non-Dischargeable Debts Handled During Bankruptcy?

 Posted on November 28, 2022 in Bankruptcy

For people who have significant debts that they are unable to repay, bankruptcy is a process that can help them get a fresh start. Most consumer debts, including credit cards, medical bills, and loans, can be discharged through bankruptcy. Once the process is completed, these debts will be forgiven, and the debtor will no longer be required to pay what is owed. However, there are certain types of debts that cannot be eliminated. These types of debts, which are known as non-dischargeable debts, remain with the debtor even after the bankruptcy process has been completed. It is important to understand how these types of debts will be handled during a bankruptcy case. 

Examples of Non-Dischargeable Debts

There are several types of debts that are non-dischargeable, including:

• Child support and alimony payments - Debts that are classified as "domestic support obligations" will continue to be owed, and the amounts due must be paid in full, regardless of a person's financial situation. Interest will usually accrue on the amount owed, and any ongoing payments that have been ordered by a court must continue to be paid.

• Taxes owed to the IRS or a state or local government - Back taxes usually cannot be discharged, and they will continue to be owed after completing the bankruptcy process. However, there are some cases where federal tax debts may be discharged as long as specific requirements are met. Tax debts that are more than three years old at the time a person files for bankruptcy may be discharged, as long as the person has filed all required tax returns for the previous four years and continues to file tax returns and pay taxes that are due during their bankruptcy case.

• Student loans - Federal education loans, including private loans backed by the federal government, are typically non-dischargeable. However, bankruptcy may be used to restructure the repayment schedule or reduce the amount that is owed. 

• Certain types of personal injury judgments - Debts resulting from personal injury claims that were related to a person's operation of a vehicle while intoxicated by alcohol or drugs are usually non-dischargeable.

• Debts incurred due to fraudulent activity - Debts that were obtained through false representation are typically non-dischargeable. These include luxury goods or services totaling more than $500 purchased within 90 days before filing for bankruptcy or cash advances of more than $750 received within 70 days before filing.

• Criminal fines and restitution orders - Fines, fees, or penalties ordered by a court following a conviction for a criminal offense typically must be paid and cannot be eliminated through bankruptcy.

Addressing Non-Dischargeable Debts During Bankruptcy

While bankruptcy may eliminate certain debts, non-dischargeable debts must still be paid according to their terms. However, depending on the type of bankruptcy filed, these debts may be addressed differently. In a Chapter 7 bankruptcy, other debts may be discharged, which will free up more money that a person can use to put toward their non-dischargeable debts. At the same time, the terms of non-dischargeable debts may be renegotiated, ensuring that a person will be able to make affordable payments and pay off what is owed.

In a Chapter 13 bankruptcy, multiple types of debts may be included in a debtor's repayment plan. In addition to making payments toward some dischargeable debts, a payment plan may allow for the past-due amounts on non-dischargeable debts to be repaid along with ongoing payments. This can help a person catch up on these debts, eliminate other types of debts, and maintain financial stability once their repayment plan has been completed.

Contact Our New Braunfels Bankruptcy Lawyer

Bankruptcy can be an effective way to address multiple types of debts and get a fresh start. However, it is important to understand exactly what types of debts can and cannot be discharged. If you have questions about how different kinds of debt will be handled during your bankruptcy case, the experienced Boerne bankruptcy attorney at the Law Offices of Chance M. McGhee can provide guidance on what steps you should take next. Call us at 210-342-3400 to set up a free consultation today.

Sources:

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

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

https://www.irs.gov/businesses/small-businesses-self-employed/declaring-bankruptcy