Mark Twain (1894), Francis Ford Coppola (1990), Walt Disney (1923), Ulysses S. Grant (1884, after office), Larry King (1978), Stan Lee (2001), Tom Petty (1979), Mickey Rooney (1962).
What do all of these successful celebrities have in common? They each filed for bankruptcy and it didn’t ruin their lives! Filing for bankruptcy can feel life altering, but for those with large dischargeable debts, the change can be very positive.
Not All Debts Were Created Equal
Unfortunately, not all debts are dischargeable in bankruptcy, no matter which chapter you file under. But a majority of consumer debt is dischargeable, and knowing which debts are dischargeable will help you make a better decision about whether to file bankruptcy. It should be noted that only debts that were incurred more than 90 days before filing the bankruptcy can be legally included for discharge.
There are 19 different categories of debt that cannot be discharged through Chapter 7 Bankruptcy.
Common Categories of Non-Dischargeable Debts
- debts not listed on the bankruptcy schedules, unless the creditor actually had notice or knowledge of the bankruptcy filing
- recent tax debts
- debts for spousal or child support or alimony
- debts owed to a former spouse or child if they arose out of a divorce or separation
- debts to government agencies for fines and penalties
- student loans (with a few rare exceptions)
- debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated
- debts owed to certain tax-advantaged retirement plans
- debts for certain condominium or cooperative housing fees (such as homeowners association fees)
- attorney fees in child custody and support cases
- court fines and penalties, including criminal restitution
Everything that does not fall within these categories is dischargeable.
Common Categories of Dischargeable Debt
- credit card charges (including overdue and late fees)
- accounts that have been transferred to a collection agency
- all medical bills
- personal loans from friends, family, and employers
- all utility bills (but utilities will likely be shut off as a result)
- repossession deficiency balances
- auto accident claims (except those involving drunk driving)
- personal business debts
- money owed under lease agreements (including past due rent)
- civil court judgments (unless based on fraud)
- tax penalties and unpaid taxes that were filed on time, or with a valid extension, and are over four years old
- attorney fees (except child support and alimony awards)
- social security overpayments, and
- veterans assistance loans and overpayments.
It should also be noted that there are certain debts that may be challenged by creditors. If the trustee sides with the creditors objections, the debt will not be discharged at the end of the bankruptcy and you will remain responsible for the entire debt.
Debts Not Dischargeable If a Creditor Successfully Objects
- credit card purchases for luxury goods owed to a single creditor, for more than $650 total, and incurred within 90 days of filing for bankruptcy (this prevents an individual from racking up huge debts in anticipation of filing bankruptcy)
- cash advances aggregating to more than $925 obtained by debtor within 70 days of filing for bankruptcy (again, this prevents bankruptcy fraud)
- debts obtained by fraud or false pretenses
- debts incurred as a result of willful and malicious injury to another or to the property of another.