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Dischargeable vs. Nondischargeable Debts in Bankruptcy

When a debt is discharged in bankruptcy, the debtor is relieved of the obligation to repay the debt. Debts that are not discharged must still be paid, even after the debtor is granted a discharge by the Bankruptcy Court. 


Under the federal Bankruptcy Code, nineteen categories of debts are excepted from discharge in bankruptcy. Certain exceptions to discharge apply automatically. Other types of debts are not automatically excepted from discharge, requiring the creditor to commence a proceeding in the Bankruptcy Court to have the debt deemed nondischargeable.

Debts that are Automatically not Dischargeable

The following are the most common types of debts that are automatically not discharged:


Student Loans. Loans incurred for higher education, including government-insured loans and loans from for-profit lenders, or a debt for the repayment of a scholarship or stipend, are not dischargeable in bankruptcy. Generally, student loans are not dischargeable unless the debtor demonstrates that repayment of the loan would create an undue hardship on the debtor or the debtor’s dependents. However, in November 2022, the U.S. Department of Justice announced a new program that established procedures to determine if student loans can be discharged in bankruptcy. In addition, loans incurred to attend non-accredited schools may also be dischargeable.


Taxes

  • Income taxes due less than three years before a debtor files for bankruptcy are not dischargeable in Chapter 7. They are dischargeable in Chapter 13 if a return was timely filed. However, taxes due less than three years before a Chapter 13 filing are considered priority debts, which generally must  be paid in full in the Chapter 13 plan.

  • Taxes that were due more than three years before the bankruptcy filing, and for which a return was timely filed, are dischargeable. If the tax return was filed late, the taxes are dischargeable only if the return was filed more than two years before the date of the bankruptcy filing.

  • Debts for tax years for which the debtor did not file a return are not dischargeable.

  • Debts for fraudulent tax returns are not dischargeable.

  • A business debtor’s debts for failure to pay certain taxes, such as withholding taxes or sales taxes, are not dischargeable, regardless of how many years prior to the bankruptcy filing they were incurred.

  • Debts incurred to pay nondischargeable taxes are not dischargeable in Chapter 7, although they are dischargeable in Chapter 13.


Debts in Divorce

  • Domestic Support Obligations – Debts for child support or spousal support arising from a court order, decree or separation agreement are not dischargeable.

  • Debts to a spouse, former spouse or child of the debtor, that are not in the nature of support, incurred pursuant to a property settlement agreement, divorce decree or other court order, are not dischargeable in Chapter 7, although they are dischargeable in Chapter 13.


Government fines. Fines and penalties that are punitive, as opposed to compensatory, are not dischargeable in Chapter 7, although they are, for the most part, dischargeable in Chapter 13.


Pension Loans. Debts owed for loans from pension, profit sharing or other qualified plans are not dischargeable.


Motor Vehicles. Debts incurred due to another person’s death or personal injury arising from the debtor’s operation of a motor vehicle while intoxicated are not dischargeable.


An issue that often arises is whether debts that were not listed in a bankruptcy filing are discharged. Technically, under the Bankruptcy Code, these debts are not discharged. However, most courts have found that such debts are discharged if the case was a no-asset Chapter 7 case, and the debt is otherwise dischargeable.

Debts that are Deemed Nondischargeable Only Upon Court Determination

There are three categories of debts that are not automatically nondischargeable. For these debts to be excepted from discharge, the creditor must timely file a complaint to determine dischargeability of the debt, as follows:


  • Debts incurred that were obtained by false pretenses, misrepresentation, fraud, or written statements that were materially false respecting the debtor’s financial condition. However, certain debts in this category are presumed to be nondischargeable. These include debts owed to a single creditor, totaling more than $725 for luxury goods or services incurred in the 90 days prior to the bankruptcy filing; and cash advances in excess of $1,000 incurred within 70 days prior to the bankruptcy filing.


  • Debts incurred due to embezzlement or larceny


  • Debts incurred due to fraud or defalcation while acting in a fiduciary capacity. The term “defalcation” is not defined in the Bankruptcy Code. The United States Supreme Court, in the case of Bullock v. BankChampaign, N.A. held that defalcation requires conduct that is intentionally improper, or reckless conduct that is a gross deviation from the standard of conduct that a law-abiding person would observe in the actor’s situation.


  • Debts incurred for willful and malicious injury by the debtor upon another person, entity or property, are not dischargeable in Chapter 7, although they are dischargeable in Chapter 13.

Debts that are Discharged in Bankruptcy

Most debts not listed above are dischargeable in Chapter 7 and Chapter 13 of the Bankruptcy Code. The following are examples of the most common types of debts that are dischargeable in bankruptcy:

  • Medical bills

  • Business debts

  • Leases that are rejected

  • Credit card debts

  • Other “open account”  debts

  • Debts in collection

  • Past due utility bills

  • Past due rent

  • Civil court judgments

  • Revolving credit accounts

  • Unsecured personal loans

  • Attorney’s fees, except if incurred in connection with domestic support obligations


Dischargeable Debts In Chapter 13

Certain debts that are not dischargeable in Chapter 7 are dischargeable in Chapter 13. In addition to the debts that are dischargeable in Chapter 7, the following debts are dischargeable under Chapter 13:

  • Debts for willful and malicious injury to the property of another person or entity. However, debts incurred for restitution or damages, awarded in a civil action      against the debtor, for willful or malicious injury to another person, are not dischargeable

  • Debts incurred to pay off nondischargeable tax obligations

  • Debts to a spouse, former spouse or child of the debtor, that are not in the nature of support, incurred pursuant to a property settlement agreement, divorce decree or other court order

Free Consultation Regarding Discharge of Debts in Bankruptcy

Contact the Law Office of Andrew M. Doktofsky today to find out if your debts can be discharged in bankruptcy. Andrew M. Doktofsky represents clients in Suffolk County, Nassau County, New York City, and surrounding areas. Call (631) 673-9600, or complete the contact form below.

Andrew M. Doktofsky P.C.  is a debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code.

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