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What kinds of debts cannot be discharged in bankruptcy?

Most people who live in and around Tyler give consideration to filing a bankruptcy petition because they believe that their debts will be discharged and that they will be relieved of the obligation to repay those debts. While this belief holds true for many types of legal obligations, the United States Bankruptcy Code lists a number of kinds of debt that cannot be discharged by an order under either Chapter 7 or Chapter 13. The debts that cannot be discharged are referred to as “non-dischargeable debts.” An understanding of which debts are affected by this law may help some persons make financial decisions before they file a bankruptcy petition.

The two kinds of debts that usually draw the most interest (apart from credit card debt) are past due taxes and domestic support obligations such as child support and alimony. Neither federal nor state income tax liabilities can be discharged in bankruptcy. Another kind of non-dischargeable debt owed to a governmental entity cannot be discharged if the debt is the result of a fine, penalty or forfeiture. If the debtor made a fraudulent statement in a tax return, the debt associated with the tax obligation cannot be discharged. Likewise, no domestic support obligation can be discharged in bankruptcy.

Acts of fraud will also make other obligations non-dischargeable. These debts include an act of fraud while the debtor was acting in a fiduciary capacity and infliction of a willful and malicious injury by the debtor. . A debt created by any act of fraud or defalcation while the debtor was acting in a fiduciary capacity with respect to any depository institution or insured credit union. Damages for which the debtor is liable by reason of a personal injury inflicted while the debtor was operating a motor vehicle, vessel or aircraft.

Two other types of obligations that cause the most worry to potential bankruptcy filers are medical debt and credit card debt. These kinds of debts are usually subject to discharge unless they fall into one of the categories that deny dischargeability due fraud by the debtor. Credit card debts have another limitation. A debt owed to a single creditor that aggregates more than $500 for luxury goods is deemed non-dischargeable, and cash advances that aggregate more than $750 are also non-dischargeable.

A broad category of relief is provided to debtors for whom the denial of dischargeability would impose an undue hardship on the debtor regarding educational benefit or loan made or guaranteed by a governmental unit. If the debtor can prove the hardship, the underlying debt will be discharge.

The subject of a debt’s dischargeability can become very complex because the section defining non-dischargeable debts has a number of exceptions. Moreover, the non-dischargeability of an especially large debt could impair the rationale for filing a bankruptcy petition.

The advice of a competent bankruptcy attorney can be very helpful in these matters. Consulting such a lawyer before filing a bankruptcy petition is a very sensible step.


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