Not all debts can be discharged in bankruptcy. Some debts will survive bankruptcy—they remain valid and collectible, just as they were before you filed for bankruptcy.
It's important for you to know which debts will be wiped out and which ones will not.
When you get a bankruptcy discharge, it won't spell out exactly what debts are discharged. Instead you'll receive a form from the bankruptcy court saying your debts are discharged.
- Some kinds of debts are always discharged in bankruptcy
- Some debts are never discharged in bankruptcy
- Student Loan debts are not discharged unless you can prove that your situation is an exception to the rule
- Income tax debts are not discharged unless they're old — three years or older — and you've timely filed the necessary returns more than three years ago
- Some types of debts are discharged unless the creditor comes to court and successfully objects to the discharge.
Debts That Will Be Wiped Out in Bankruptcy
Credit Card Debts
The vast majority of people who file for bankruptcy are truing to get rid of credit card debts. Most bankruptcies succeed in this mission. The few exceptions are for case involving fraud or luxury purchases just before your bankruptcy.
Many folks who file for bankruptcy do so as a result of medical bills. Many people have inadequate insurance, or can't afford the deductibles in the plans that are available to them. Bankruptcy can eliminate these debts. (Note: Obamacare and medicaid expansion have greatly reduced these kind of bankruptcy, especially in states that have expanded Medicaid eligibility.)
Lawsuit Money Judgements
If a creditor sues you to collect a debt and wins, the court will issue a judgement ordering you to pay the debt. If you don't pay it voluntarily, the judgment holder is entitled to collect it from you by, for example, getting funds from your bank account, garnishing your wages, or placing a lien on your home.
In the vast majority of cases, money judgements are discharged in bankruptcy. And even judgement liens attached to your home can be eliminated if you if they interfere an exemption on your home.
Debts Arising From Car Accidents
Car accidents can lead to injuries to persons and property. Sometimes the person responsible is uninsured, or has inadequate coverage to cover all actual damages.
If the accident was the result of the drivers mere "negligence" — rather than some "willful or malicious" act — the debt arising from the accident is dischargeable in bankruptcy. But if the debt was the result of drunk driving, the debt will survive bankruptcy. A reckless driving charge may or may not meet the willful and malicious standard.
Obligations Under Leases and Contracts
Bankruptcy allows you to break leases or contracts and walk away from the personal liability (that is, you can’t be sued for damages) — unless the trustee thinks the lease or contract could provide money to pay your unsecured creditors, or the courts find that you filed for bankruptcy simply to get out of a personal services contract.
Personal Loans, Payday Loans, and Promissory Notes
Money you owe from a promissory note or a handshake deal are almost always dischargeable in bankruptcy.
For a more detailed discussion of these points see Chapter 9 of How to File For Chapter 7 Bankruptcy, by Albin Renauer & Cara Oneil (22nd ed. 2021)
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Some kinds of debts pass unscathed through bankruptcy, including child support, debts incurred through fraud or other bad acts, most student loan debt, more.
By law, child support obligations generally cannot be avoided in a bankruptcy. They pass pretty much intact.
Yes, but it is much more difficult than discharging other types of unsecured debt like credit cards. You have to prove “undue hardship.” But you might get lucky, if you get the right bankruptcy judge. Be sure to consider non-bankruptcy options.