Updated: March 28, 2019
Although most Chapter 7 bankruptcy filers will be able to get rid of qualifying debt, such as credit card balances, medical bills, and personal loans, some debts are nondischargeable. They aren't erased in Chapter 7 bankruptcy. Here's what you can expect in Chapter 7 bankruptcy.
Barriers to Discharge
Most debtors don't have any problem sailing through the Chapter 7 process. That said, getting a Chapter 7 discharge isn't a sure bet. Here are two barriers to debt discharge.
- You fail to follow bankruptcy procedures and court rules. If you fail to do so, the court could deny your Chapter 7 petition altogether, leaving you responsible for the otherwise dischargeable debt.
- Your debt doesn't qualify for a discharge. 19 categories of nondischargeable debt exist. These are debts that Congress determined shouldn't be dischargeable due to public policy reasons. Most of these debts are outright nondischargeable unless extraordinary circumstances exist. 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.
Grounds for Denial of Chapter 7 Discharge
In Chapter 7 cases, the debtor doesn't have an absolute right to a discharge. In order to receive a discharge, debtors must fulfill the requirements of bankruptcy law. (11 U.S.C. § 727.)
If the debtor fails to follow the rules or doesn't provide mandatory information, a creditor, the bankruptcy trustee, or the U.S. trustee can object to the entire Chapter 7 discharge. For instance, the court can 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.
If successful, the debtor will remain responsible for all obligations.
Debts That Are Always Nondischargeable in Chapter 7
Some types of debts are deemed nondischargeable without the need for a hearing if they fall within one of a list of prescribed categories. Unless the debtor can demonstrate extraordinary circumstances, the following debts are 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.
While all of these debts are nondischargeable in Chapter 7, some of them can be eliminated in Chapter 13. Find out which debts are dischargeable in Chapter 13 but not Chapter 7.
Debts Not Dischargeable If a Creditor Objects
Some debts aren't automatically excepted from discharge. Creditors must ask the court to determine if they are dischargeable or not. If the creditor doesn't raise the dischargeability issue or the creditor raises the issue but the court doesn't agree, these debts will be discharged.
- Credit card purchases for luxury goods. When owed to a single creditor and aggregating to more than $725 (as of April 1, 2019) and incurred within 90 days of filing for bankruptcy, these debts are presumed fraudulent and nondischargeable. The creditor must present the facts to the court in an adversary proceeding—a type of lawsuit. 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. When a debtor obtains more than $1,000 (as of April 1, 2019) from one creditor within 70 days of filing for bankruptcy, the debt is presumed fraudulent and nondischargeable. Again, if you can prove that you intended to pay this money back, then the debt will be discharged. Learn more about luxury debts and cash advances.
- Debts obtained by fraud or false pretenses. These types of cases tend to stem from misrepresenting income on credit applications or purchasing goods and services on credit with no intent to pay. Find out more in What Is Bankruptcy Fraud?
- Debts incurred due to willful and malicious injury. You won't be able to discharge a debt arising from intentionally injuring someone or someone's property.
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, and who is eligible. Find out more about all aspects of bankruptcy.