Which Debts Cannot Be Wiped Out?
What Debts Are Not Erased By A Bankruptcy?
The following debts are not erased in either Chapter 7 or Chapter 13. If you file for Chapter 7, these will remain when your case is over. If you file for Chapter 13, these debts will have to be paid in full during your payment plan. If they are not, the balance will remain due at the end of your case:
- Debts you forget to list in your bankruptcy papers, unless the creditor learns of your bankruptcy case;
- Child support and alimony;
- Debts for personal injury or death caused by your intoxicated driving;
- Student loans, unless it would be an undue hardship for you to repay;
- Fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution, and
- Recent income tax debts and all other tax debts. This is a complicated area of the bankruptcy law and an attorney should be consulted. You can discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all of these five conditions are met:
- The IRS has not recorded a tax lien against your property. (If all other conditions are met, the taxes may be discharged, but even after your bankruptcy, the lien remains against all property you own, effectively giving the IRS a way to collect.)
- You didn’t file a fraudulent return or try to evade paying taxes.
- The liability is for a tax return (not a Substitute or Return) actually filed at least two years before you file for bankruptcy.
- The tax return was due at least three years ago.
- The taxes were assessed (you received a notice of assessment of federal taxes from the IRS) at least 240 days (eight months) before you file for bankruptcy.
In addition, the following debts may be declared non-dischargeable by a bankruptcy judge in Chapter 7 if the creditor challenges your request to discharge them. These debts may be discharged in Chapter 13. You can include them in your plan, and at the end of your case, the balance is wiped out:
- Debts you incurred on the basis of fraud, such as lying on a credit application;
- Credit purchases of $1,150 or more for luxury goods or services made within 60 days of filing;
- Loans or cash advances of $1,150 or more taken within 60 days of filing;
- Debts from willful or malicious injury to another person or another person’s property;
- Debts from embezzlement, larceny or breach of trust, and
- Debts you owe under a divorce decree or settlement unless after bankruptcy you would still not be able to afford to pay them or the benefit you’d receive by the discharge outweighs any detriment to your ex-spouse (who would have to pay them if you discharge them in bankruptcy).
If you need relief from harassing creditors, Rowland & Yauger invite you to contact our office for a free consultation to learn how we can assist you in handling this matter. Contact us or call our office at 910-947-2280 or toll free at 910-722-9717.