The bankruptcy code allows for the forgiveness (“discharge”) of all debt of an individual, except for 19 types of debt specifically listed in the bankruptcy code. However, the exception is not automatic for all types of debt excepted from discharge. Here we will cover some of the most common automatic non-dischargeable debt and some of the non-automatic non-dischargeable debt that require action by the creditor.
Automatic Non-Dischargeable Debt:
• Certain taxes are non-dischargeable. This would include income tax owed to the IRS or State Franchise Board if they are “priority” taxes. Priority taxes are ones incurred most recently, usually within three years. Older taxes may be discharged in bankruptcy.
• Domestic Support obligations owed for child support of spousal support are usually automatically non-dischargeable.
• Certain fines and penalties imposed by governmental units
• Student Loans are non-dischargeable unless it would by an “undue hardship.”
• Divorce settlement debt is non-dischargeable Non-Dischargeable Debt Requiring Action by the Creditor: These are discharged unless a creditor takes action in a timely manner during the course of the bankruptcy proceeding.
• Credit Card Fraud: This includes debt obtained by “false pretenses, false representation, or actual fraud.” The most common credit card fraud cases involve charges for luxury items incurred within 90 days of filing bankruptcy or cash advances within 70 days of filing.
• Certain Claims for breach of fiduciary duties: This could involve misappropriation of trust funds, etc.
• Claims for willful and malicious injury
One misconception generally held is that a home loan is “non-dischargeable.” This is simply not true. The personally liability of the borrower is extinguished with the bankruptcy discharge order; however, the lien on the property will remain unless extinguished by order of the bankruptcy court in a Chapter 13 under special circumstances.
For a free initial consultation regarding these and other related issues, please contact attorney and financial counselor; Susana B. Tolchard at 661-287-9986.