Are All Debts Dischargeable Under Bankruptcy

Generally, a bankruptcy can give individuals and businesses a fresh start by canceling some of their debts. But not all debts are discharged under bankruptcy. There are certain obligations that a debtor must continue to pay even if he has declared his resources is not enough to pay the bills.

Find out what are these debt exemptions.

Non-dischargeable Debts in Bankruptcy

While a Chapter 7 might erase most of a debtor’s unsecured debts like medical bills, and unsecured notes, credit card debts, tooling loans, or mortgage payments, there are some debts that he could not go away with. Likewise, in other types of bankruptcy under the U.S. Bankruptcy Code, there are specific debts that the debtor cannot simply discharge of. Generally, these include:

  • family support payments like child and spousal support, alimony
  • student loans (except in extreme hardship)
  • taxes other than income tax
  • debts incurred as a result of willful and malicious acts or driving while drunk
  • non-dischargeable debts from a prior bankruptcy
  • criminal fines and penalties and forfeitures
  • debts for certain condominium or cooperative housing fees
  • undisclosed debts in the filing

Lien on Property or Collateral

There is also another thing he could not cancel: creditor’s lien on his property or collateral. A court could award a lien to a creditor who won a case seeking to collect on a debt arising from loans or from unpaid services or supplies made to the debtor's property. The IRS might also file a lien against the debtor's property for tax due. The lien on the property could give the creditor right to foreclose in the lien and sell the property to recover payments. This could be prevented by filing for bankruptcy so that an “automatic stay” could take effect – all lawsuits are frozen and no new cases are allowed.

More debts can be discharged under Chapter 13, but this is so because Chapter 13 debtors actually pay them. For example, debts for willful and malicious damage to property can be discharged after the debtor paid the debt and the court confirmed the payment. Debts incurred to pay tax obligations that cannot be discharged can be settled in the same way.

There is also what is called a "hardship discharge," applied to very limited and extremely rare cases. It is available under Chapters 7, 12 and 13.


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