Most debts get written off—discharged—in bankruptcy. The Bankruptcy Code lists non-dischargeable debts.
Debts Covered by the Discharge
The basic rule in bankruptcy is that a bankruptcy will discharge your debts unless a particular debt fits a listed exception. Contact your Kalispell bankruptcy lawyer if you need help.
Focusing on Chapter 7 “straight bankruptcy,” you will likely receive an Order of Discharge within about 4 months after filing your case. The heart of this court order simply states that “A discharge… is granted to [the debtor].”
These are the listed exceptions—the debts NOT discharged through the Order of Discharge.
Exceptions to Discharge
Section 523 of the Bankruptcy Code covers “Exceptions to discharge.” There are two categories of exceptions in which bankruptcy will not discharge debts:
First, those in which a creditor must object and prevail, and
Second, those that do not require objection by a creditor.
Debts Requiring Successful Creditor Objection
In this first category, “the debtor shall be discharged for [the] debt of a kind specified” “unless, on request of the creditor… , the [bankruptcy] court determines such debt to be excepted from discharge… .” Section 523(c)(1)of the Bankruptcy Code.
In other words, a bankruptcy discharges these specific debts unless the following is true:
- the debt is “of a kind specified”;
- the creditor requests a court determination; and
- the court determines in favor of the creditor that the debt should be excepted from discharge.
There are 3 kinds of debts in which a creditor can ask for a court determination about discharge of the debt:
- Fraud Debts: incurred when a debtor makes a misrepresentation or commits fraud to get a loan or credit. Section 523(a)(2);
- Theft, Embezzlement, Fraud in a Trust Relationship: stealing from anyone, such as an employer or business partner, and especially from someone in a fiduciary relationship. 523(a)(4);and
- Willful and Malicious Injury: intentionally and maliciously harming a person or business, and/or property. 523(a)(6).
Timely and Successful Objection
A creditor will ask the court for a determination that debt falls within one of these 3 kinds by filing a formal “adversary proceeding,” a type of limited lawsuit, in the bankruptcy court. However, the creditor must file this within a strict deadline, usually within 60 days after a scheduled meeting of creditors. Therefore, if the creditor received appropriate notice of the bankruptcy case but doesn’t object by this deadline, the bankruptcy will discharge the debt forever.
But, if a creditor timely objects, the bankruptcy court must decide whether a debt should get discharged. Unlike most lawsuits on a debt, the court need not determine whether the debtor owes the debt. That is generally assumed. Rather, the question is whether the facts support the narrow grounds of fraud and such which make the debt not dischargeable. Therefore, the court will discharge the debt if the creditor cannot prove the necessary facts.
Debts Not Requiring Creditor Objection
Some debts are discharged unless a creditor’s objection involves some bad action by a debtor towards the creditor. Generally, an objection to discharge will be raised if a creditor cares about being wronged.
But, the creditor need not object when the debts fall into the second category. That’s because the kinds of debts in this category are not dischargeable simply because of the debt. There doesn’t need to be a court determination. It’s usually straightforward whether the debt belongs to these nondischargeable types of debt.
Here is a list of debts that do not get discharged even without creditor objection:
- Criminal fines, fees, and restitution;
- Income taxes, and other forms of taxes, under certain conditions;
- Child and spousal support;
- Student loans that don’t cause an “undue hardship”;
- Claims for bodily injury or death from driving while intoxicated; and
- Debts not listed in your bankruptcy schedules, under certain conditions.
There ARE sometimes questions about whether the debt at issue fits the not-discharged definition. But it’s usually clear whether a debt is, for example, a criminal fine, or child support. We will have other blog posts that focus on these issues.
Note: Today’s blog post was about the discharge of debts in a Chapter 7 case. The debts discharged in a Chapter 13 case are slightly broader.