Debts Not Discharged in Chapter 7 Bankruptcy

A Chapter 7 bankruptcy discharges many types of debt. However, there are some debts that are not discharged in Chapter 7. The list of non-dischargeable debts appears in section 523 of the Bankruptcy Code (11 U.S.C. § 523).  There are a total of nineteen categories of debts not discharged in Chapter 7, with some categories further divided into subcategories.

Types of Non-Dischargeable Debt

• Certain taxes, including taxes for which a return was due in the last three years, and taxes for which a return was never filed. 11 U.S.C. 523(a)(1). There are several other sub-categories of taxes that are not dischargeable. The issue of the dischargeability of taxes is very complex, and usually requires careful analysis of each specific situation. In addition, a debt incurred to pay a nondischargeable tax is also nondischargeable. 11 U.S.C. 523(a)(14), (14a).

• Debt for money, property, services, or credit obtained by fraud or false pretenses. 11 U.S.C. 523(a)(2). Of particular note is that “consumer debts owed to a single creditor and aggregating more than $650 for luxury goods or services incurred by an individual debtor on or within 90 days before [the bankruptcy is filed] are presumed to be nondischargeable.”

• Domestic support obligations. 11 U.S.C. 523(a)(4). These include child support and alimony, which are both not dischargeable.

• Fines and penalties payable to and for the benefit of a governmental unit. 11 U.S.C. 523(a)(7). This means that traffic tickets are generally not dischargeable in Chapter 7 bankruptcy. However, they may be dischargeable in Chapter 13 bankruptcy.

• Student loans. 11 U.S.C. 523(a)(8). The exception to this rule is if the debtor (the person filing bankruptcy) can show that excluding the student loan from discharge would cause an undue hardship.

• Debts for causing death or personal injury while driving under the influence. 11 U.S.C. 523(a)(9).

• Debts to a former spouse or child incurred during the course of divorce or separation. 11 U.S.C. 523(a)(15).

• HOA dues that become due and payable after the bankruptcy is filed. 11 U.S.C. 523(a)(16). This one comes up quite often where a person is letting their home go into foreclosure, but the foreclosure does not take place until after bankruptcy. Under this rule, the former homeowner is responsible for the HOA fees that become due after the bankruptcy is filed and until the title to the property is officially transferred to a new owner.

As should be obvious from the above list, there are many pitfalls in preparing a Chapter 7 case for those who are not familiar with the rules or the process. This is especially so when it comes to determining which debts are dischargeable. It is therefore very important to carefully analyze the impact of the Chapter 7 bankruptcy on the dischargeability of each type of debt you may have before the bankruptcy is filed.