Although most Chapter 7 bankruptcy filers will be able to get rid of most or all of their debt, there are some debts that are nondischargeable, meaning they are not wiped out in Chapter 7 bankruptcy. Here's a primer on which debts will not be discharged in Chapter 7 bankruptcy.
(To learn more about what happens to debts in Chapter 7 bankruptcy, including which debts are generally discharged, see our Chapter 7 Bankruptcy area.)
Barriers to Discharge
There are several barriers to discharging your debt.
The court may deny a Chapter 7 discharge if you fail to follow bankruptcy's procedures and court rules. If that is the case, the court may deny your Chapter 7 petition altogether, which means you cannot discharge even your otherwise dischargeable debt.
In addition, the Bankruptcy Code lists 19 categories of nondischargeable debt. These are debts Congress has determined not dischargeable for public policy reasons (based on the nature of the debt or the fact that the debts were incurred due to improper behavior). For most of these categories, the debt is outright nondischargeable, unless extraordinary circumstances exist. That means that when you get your discharge at the end of your case, the creditor can continue with collection activities.
For a few of the 19 categories of debt, the creditor must successfully challenge the discharge of the debt during the bankruptcy case. If a creditor doesn't raise an objection, or if it does and the court disagrees, the debt will be discharged.
Each of these barriers is discussed in more detail below.
Grounds for Denial of a Chapter 7 Discharge
In Chapter 7 cases, the debtor does not have an absolute right to a discharge. In order to receive a discharge, debtors must abide by the provisions of the Bankruptcy Code. Section 727(a) of the Bankruptcy Code outlines a list of reasons why the court may deny a Chapter 7 discharge -- all of these have to do with the debtor's obligation to comply with certain rules or bankruptcy procedures. If the debtor fails to follow certain rules or provide information, a creditor, the bankruptcy trustee, or the U.S. trustee may object to the entire Chapter 7 discharge. If the court agrees and denies the Chapter 7 discharge, it is possible that none of your debts will be discharged, even those that are otherwise dischargeable.
The court may deny a Chapter 7 discharge if you:
- do not provide requested tax documents
- don't complete a course on personal financial management
- transfer or hide property in order to defraud or hinder your creditors
- destroy or hide books or records
- commit perjury or other fraudulent acts in connection with your bankruptcy case
- cannot account for lost assets
- violate a court order, or
- previously filed a bankruptcy case and were granted a discharge, within certain time frames, depending on the type of bankruptcy filed.
Debts That Are Always Nondischargeable
Some types of debts are deemed nondischargeable if they fall within one of a list of prescribed categories. Debts falling in one of these categories do not require a court hearing to determine dischargeability status.
Unless the debtor can demonstrate extraordinary circumstances to override public policy, the following debts are deemed automatically nondischargeable:
- unscheduled debts (any debts the debtor fails to list on the bankruptcy petition or include on the mailing list), unless the creditor had actual notice or knowledge of the bankruptcy filing. Also, many jurisdictions allow discharge of otherwise dischargeable debts not listed in the petition due to an innocent mistake when there are no assets to distribute.
- certain taxes (for details, see Tax Debts in Bankruptcy)
- debts for spousal or child support or alimony
- debts owed to a former spouse or child if they arose out of a divorce or separation
- debts to government agencies for fines and penalties
- student loans (with a few rare exceptions)
- debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated
- debts owed to certain tax-advantaged retirement plans
- debts for certain condominium or cooperative housing fees (such as homeowners association fees)
- attorney fees in child custody and support cases, and
- court fines and penalties, including criminal restitution.
Debts Not Dischargeable If a Creditor Successfully Objects
There are other types of debts not deemed automatically excepted from discharge. For these debts, creditors must ask the court to determine if they are dischargeable or not. The court will ordinarily require motions to be filed and hold a hearing when making its decision. If the creditor does not raise the issue of dischargeability or the creditor raises the issue but the court does not agree, these debts will be discharged.
These types of debts include:
- credit card purchases for luxury goods owed to a single creditor and aggregating to more than $650 and incurred within 90 days of filing for bankruptcy (the creditor must present the facts to the court, if you prove that you intended to pay the charges back or that the goods aren't "luxury" items then the debt will be discharged)
- cash advances aggregating to more than $925 obtained by debtor within 70 days of filing for bankruptcy (again, if you can prove that you intended to pay this money back, then the debt will be discharged)
- debts obtained by fraud or false pretenses, and
- debts incurred as a result of willful and malicious injury to another or to the property of another.
If you're considering bankruptcy as an option for dealing with debt, you'll want to learn more about how it works, what it can (and cannot) do, how the process works and who is eligible. Check out Nolo's Bankruptcy Center for lots of free legal information.