Depending on which type of bankruptcy is filed, a debt may not qualify to be discharged or eliminated. A lawyer experienced in bankruptcy law can advise clients on whether and how a particular debt will be affected by a bankruptcy discharge. Generally speaking, in a Chapter 7 proceeding, the following debts are not discharged:
- Debts or creditors not listed on the schedules filed at the outset of the case.
- Most student loans, unless repayment would cause the debtor and his or her dependents undue hardship.
- Recent federal, state and local taxes.
- Child support and spousal maintenance (alimony).
- Government-imposed restitution, fines and penalties.
- Court fees.
- Debts resulting from driving while intoxicated.
- Debts not dischargeable in a previous bankruptcy because of the debtor’s fraud.
Student Loans Cannot Usually Be Discharged
As noted in the above list, educational loans are generally not discharged by a Chapter 7 bankruptcy. They may be dischargeable, however, if the court finds that paying off the loan will impose an undue hardship on the debtor and his or her dependents.
In order to qualify for a hardship discharge of a student loan, the debtor must demonstrate that he or she cannot make payments at the time the bankruptcy is filed and will not be able to make payments in the future. The debtor must apply before the discharge of the debtor’s other debts is granted. Application for a hardship discharge is not included in the standard bankruptcy fees, and must be paid for after the case is filed.
The Bankruptcy Code does not specifically define the requirements for granting a hardship discharge of a student loan. Courts have applied different standards, but they often apply a three-part test to determine eligibility: (1) income — if the debtor is forced to pay off the student loan, the debtor will not be able to maintain a minimum standard of living for himself or herself and his or her dependents; (2) duration — the financial circumstances that satisfy the income test in (1) will continue for a significant portion of the repayment period; and (3) good faith — the debtor must have made a good-faith effort to repay the loan prior to the bankruptcy.
Additional Kinds Of Debt That Cannot Be Discharged
The following debts are not discharged if the creditor objects during the case and proves that the debt fits one of these categories:
- Debts from fraud, including certain debts for luxury goods or services incurred within 90 days before filing and certain cash advances taken within 70 days after filing.
- Debts from willful and malicious acts.
- Debts from embezzlement, larceny or breach of fiduciary duty.
- Debts from a divorce settlement agreement or court decree, if the debtor has the ability to pay, and the detriment to the recipient would be greater than the benefit to the debtor.
Contact Rauser & Associates Legal Clinic LLP For More Information On Bankruptcy Discharge
If you have questions about which debts will be affected by a bankruptcy discharge, it is essential to seek the advice and counsel of an experienced bankruptcy attorney. Call Rauser & Associates Legal Clinic LLP at 888-843-5787 or fill out our online contact form to set up a consultation.
