As a bankruptcy attorney here in Dallas, I often get emails like the one I got from Dennis with a subject line: “Can Filing for Bankruptcy Help?”
Dennis’s Story
Dennis and his wife had lived comfortably for many years until a medical emergency wiped out their savings. Then a downturn in the housing market meant fewer clients for his construction company leaving them buried under a mountain of debt. Credit cards were maxed out, medical bills were piling up, and their home equity line of credit was stretched thin.
Dennis conveyed in his email that he had been resisting filing for bankruptcy but he was ready to learn if the option was right for them. His instinct was that filing would help him relieve some of his debts but not necessarily all. He didn’t want to bother filing if he wasn’t going to get significant relief.
Hoping to relieve some of his stress, I quickly replied to Dennis. I explained that I suspected filing for bankruptcy could help them get a fresh start. Lawmakers designed bankruptcy laws to give good people a break from difficult circumstances, not bail out people from criminal or otherwise shady behavior.
The laws seemed designed to help people like him.
From the little bit of detail he mentioned to me already, I thought many of his debts could be discharged. But first, I needed him to know about 12 non-dischargeable debts so I sent him the information in this article and asked him to get back to me letting me know if any of his debts were on the list of 12.
Bankruptcy can offer a lifeline to folks like Dennis who are drowning in debt. But just as Dennis’s instincts told him, filing for bankruptcy won’t make every debt disappear. Certain obligations, known as non-dischargeable debts, stick around even after filing. These debts range from student loans to child support and can weigh down the fresh start you seek.
Knowing what debts can and cannot be discharged in a bankruptcy proceeding is an important piece of your bankruptcy puzzle. So let’s explore the 12 most typical non-dischargeable debts and see how they could impact your decision to file for bankruptcy protection or not.
As you read this list, please keep in mind that every financial situation is one-of-a-kind, so it’s wise to discuss yours with a knowledgeable bankruptcy lawyer. They’ll break down your options and help you determine if filing for bankruptcy is right for you.
Top 12 Non-Dischargeable Debts in Bankruptcy
When you’re drowning in debt, bankruptcy can seem like your lifeline to debt free living. But not all debts are created equal in the eyes of bankruptcy law. Some debts, known as non-dischargeable debts, will stick with you even after your bankruptcy case is over.
The U.S. Bankruptcy Code lists 19 different categories of debts that cannot be discharged in Chapter 7, Chapter 13, or Chapter 12 (a more specialized form of bankruptcy for family farms and fisheries). While the specifics vary somewhat among the different chapters, the most common examples of non-dischargeable debts follow.
1. Student Loans
Student loans are notoriously difficult to discharge in bankruptcy. In most cases, you’ll need to prove that repaying your student loans would cause “undue hardship” – a very high bar to clear. This applies to both federal and private student loans, as well as other educational benefits like grants and scholarships.
There have been some recent changes to the law that may make it easier to discharge student loans in bankruptcy, but for now, expect them to stick around even after your case is closed.
2. Alimony and Child Support
Bankruptcy won’t make alimony or child support obligations disappear. These debts are considered “priority debts” and are not dischargeable in bankruptcy. This includes any back payments you owe, as well as ongoing payments that come due after your bankruptcy filing.
The bankruptcy court will likely override the provision in your divorce decree or property settlement agreement that states you can discharge alimony or child support. So if you’re behind on these payments, you’ll need to work out a repayment plan with your ex or the court rather than relying on bankruptcy relief
3. Certain Taxes
Some taxes can be discharged in bankruptcy, but many cannot. Nondischargeable taxes typically include:
- Income taxes for returns that were due within the past three years
- Payroll taxes and sales taxes
- Property taxes that came due within one year of your bankruptcy filing
There are some exceptions and nuances to these general rules, so consulting with a bankruptcy attorney or tax professional to determine which of your tax debts may be dischargeable is advisable. But in general, expect recent tax debts owed to a governmental unit to stick around after bankruptcy.
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4. Court-Ordered Restitution and Criminal Fines
Bankruptcy won’t provide an escape hatch if a criminal sentence orders you to pay restitution or fines. These debts remain non-dischargeable, even if you file for Chapter 7 or Chapter 13 bankruptcy.
This applies to court-ordered restitution payments to victims, as well as any fines or penalties imposed as part of a criminal sentence. So if you’re on the hook for these types of debts, you’ll need to keep making payments even after your bankruptcy case is closed.
5. Homeowners Association Fees
If you own a home that’s part of a homeowners association (HOA), you may be surprised to learn that your HOA fees are not dischargeable in bankruptcy. This applies to any fees that come due after you file for bankruptcy, even if you surrender the property in the bankruptcy case.
The reasoning behind this rule is that by continuing to own the property, even for a short time after filing for bankruptcy, you’re still receiving the benefits of HOA membership. So you’ll need to keep paying those fees until the property is officially transferred out of your name.
6. Debts Obtained Through Fraud or False Pretenses
What about lying on a credit application, bouncing checks, or swiping someone’s credit card without their permission? Those debts might not disappear in bankruptcy. False pretenses and other shady tactics can make debts stick around, even after filing.
Creditors can object to the discharge of these debts by filing an “adversary proceeding” in your bankruptcy case. If the court finds that you did indeed obtain the debt through fraud or deception, the debt will not be discharged. The same goes for debts arising from willful and malicious injury to another person or their property.
Key Takeaway:
Bankruptcy might not wipe out all your debts. Key ones like student loans, alimony, certain taxes, and HOA fees will still be on your plate. Plus, if you got any debt through fraud or owe court-ordered payments, those aren’t going anywhere either.
7. Willful and Malicious Injury
If you deliberately and maliciously injure another person or their property, the resulting debt may not be dischargeable in bankruptcy. This includes debts arising from assault, battery, false imprisonment, and other intentional torts.
Proving Willful and Malicious Injury
To have a debt declared non-dischargeable due to willful and malicious injury, the creditor has the burden of proof. The creditor must file a complaint with the bankruptcy court and prove that the debtor acted with intent to cause harm. The court will consider factors such as the debtor’s state of mind and whether their actions were substantially certain to cause injury.
8. Debts Related to Driving Under the Influence
If you cause an accident while driving under the influence of alcohol or drugs, any debts arising from personal injury or property damage may be non-dischargeable in bankruptcy. This includes medical bills, vehicle repair costs, and legal fees related to the accident.
Motor Vehicle Accidents and Bankruptcy
In my experience, clients are often surprised to learn that debts related to drunk driving accidents are not automatically discharged in bankruptcy. It’s important to understand that the bankruptcy code treats these debts differently because of the reckless and irresponsible nature of the behavior that led to the accident.
9. Debts Not Listed on Your Bankruptcy Petition
When you file for bankruptcy, you must list all of your debts on the petition. If you fail to include a debt, it may not be discharged unless the creditor had actual knowledge of your bankruptcy case.
The Importance of Full Disclosure
I like to stress to my clients the importance of being thorough and honest when listing their debts on the bankruptcy petition. Failing to disclose a debt can have serious consequences, including the denial of your discharge or even criminal charges for bankruptcy fraud.
10. Debts from Embezzlement, Larceny, or Breach of Fiduciary Duty
If you embezzle funds, commit larceny, or breach your fiduciary duties, any resulting debts may be non-dischargeable in bankruptcy. This includes debts arising from the misappropriation of funds entrusted to you in a professional capacity, such as a trustee or executor.
Fiduciary Capacity and Bankruptcy
Debts related to the breach of fiduciary duties are not dischargeable because the bankruptcy code holds individuals in positions of trust to a higher standard. If you have access to funds or property that belong to others, it’s crucial to handle those assets responsibly and ethically.
11. Certain Condominium or Cooperative Housing Fees
If you own a condominium or cooperative housing unit, you may be responsible for paying regular fees to the homeowners’ association or co-op board. These fees, including assessments for maintenance and repairs, may not be dischargeable in bankruptcy if they become due after you file your petition.
Post-Petition Condominium Fees
It’s important to understand that while bankruptcy may discharge your personal liability for pre-petition condominium fees. You’ll still be responsible for any fees that come due after your filing date. This means you’ll need to stay current on your post-petition fees to keep your property and avoid foreclosure.
12. Debts Related to Violations of Securities Laws
Any debts arising from violating federal or state securities laws may not be dischargeable in bankruptcy. This includes debts related to insider trading, fraudulent securities offerings, and other violations of the Securities Act of 1933 or the Securities Exchange Act of 1934.
Securities Laws and Bankruptcy
Debts related to securities law violations are not dischargeable because they often involve fraud or intentional wrongdoing. If you’re facing allegations of securities fraud, it’s essential to consult with an experienced attorney who can help you navigate the complex interplay between bankruptcy and securities law.
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Key Takeaway:
Deliberate harm, DUI-related debts, undisclosed liabilities, and financial misconduct like embezzlement or larceny can’t be wiped clean in bankruptcy. Certain housing fees post-bankruptcy and securities law violations are also not dischargeable.
Always list all your debts and don’t try to hide anything to avoid a mess.
FAQs in Relation to Non-Dischargeable Debts in Bankruptcy
What debt is not dischargeable in bankruptcy?
Taxes, student loans, alimony and child support, along with debts from fraud or DUIs stay put. Bankruptcy doesn’t wipe these out.
What is one example of a debt that cannot be discharged under bankruptcy law?
Alimony and child support are classic examples. The court says you’ve got to pay up, no matter what.
What debts cannot be discharged in Chapter 13?
Mortgage liens stick around after Chapter 13. You’re still on the hook for your home loan even after everything else gets sorted.
Are punitive damages non dischargeable in bankruptcy?
Punitive damages often don’t get erased in bankruptcy. If it’s punishment for something serious you did, you’re likely paying it back.
Conclusion: Navigating Non-Dischargeable Debts
Understanding these 12 types of debts that typically survive bankruptcy better equips you to make informed decisions. You can plan for your financial future, despite non-dischargeable debts in bankruptcy feeling like a weight on your shoulders.
Student loans and taxes can complicate the bankruptcy process, but don’t let that stop you from pursuing a fresh start. A knowledgeable team can help you craft a strategy that addresses these unique challenges head-on. With determination and the right tools, you can overcome non-dischargeable debts and reclaim your financial freedom one step at a time.
There is no need to feel alone on this journey. A knowledgeable bankruptcy attorney is just a phone call away. They’ll walk you through each step, tackle your concerns head-on, and craft a personalized game plan tailored to your distinct circumstances.
For more information, take a look around our website. You’ll find great resources to help you with your case.
Should Dennis File for Bankruptcy?
After reading over this list of 12 non-dischargeable debts Dennis called me.
“Chris, good news, there’s only one on the list,” he said to me. “My wife still has some student loan debt. Before she got sick about four years ago, she went back to school and we took out some loans, but we always thought of that as good debt, more like an investment. The rest, well we’re still married, own a single family home, and don’t have anything illegal or close impacting our debt.”
“That is promising news indeed Dennis,” I told him. “I think you should strongly consider filing for bankruptcy. But before we make a final decision, I’ll need to get an accounting of your actual debts, in detail, and don’t exclude anything. As long as it’s mostly medical or business related I think we’ll have something to work with. Please send me a detailed accounting of your debts, assets, as well as your income and expense projections for the coming year. I’ll review them and get back to you.”
“Thanks Chris, I will get that information for you. It might take a few days. But I’ll get to work on it as soon as possible,” Dennis said with an air of determination in his voice.
“I trust you Dennis,” I said. “I can tell you see a path forward and want to head down it as soon as possible. Just don’t rush, let’s be thorough, and make sure we do this the right way.”
Schedule a Consultation with our Dallas Firm to Learn About Non-Dischargeable Debts in Bankruptcy
Bankruptcy can be stressful and challenging, but you do not have to face it alone. Our team of experienced Dallas bankruptcy attorneys is ready to provide you with the guidance, support, and legal advocacy you need during these challenging times.
Whether you are trying to learn about non-dischargeable debts or navigating other bankruptcy issues, we are here to help you every step of the way. We welcome you to schedule a consultation to discuss your situation and case objectives. We can answer your legal questions and discuss how we can help you move forward. Call our law office at (888) 584-9614 or contact us online to schedule your consultation.
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