Debts that are generally discharged.
- CREDIT CARD DEBT- The single largest category of debt that is frequently discharged in bankruptcy is credit card debt. This is good news for a vast majority of bankruptcy filers that are seeking to get rid of their massive credit card debts. However, there are a few exceptions where the bankruptcy court won't discharge a credit card debt. The two most common are where the court believes the credit card debt amassed just before the bankruptcy was incurred in a fraudulent manner or when the court see that the debtor purchased luxury items on credit immediately preceding the filing of the bankruptcy. It is important for a person filing bankruptcy to discuss their spending patterns with their attorney in the months leading up to filing a bankruptcy petition.
- MEDICAL BILLS- Unfortunately, the American medical system is broken. Many Americans either can't afford insurance, their deductibles, or their plans don't cover the claims submitted. Millions of Americans each year find themselves in the position where they can't afford to repay the medical bills that continue to stack up. Bankruptcy discharges medical bills. Meaning at the end of your bankruptcy you will no longer have to here from those collection agencies hounding you for that medical bill that has been accruing interest for years.
- LAWSUIT JUDGMENTS- Civil lawsuits are primarily about money damages. If you have lost a civil suit or a creditor has a judgment lien against you, then bankruptcy can help. Lawsuit judgments with money awards are almost always dischargeable. Even liens that have attached to your home can be discharged if they interfere with your homestead exemption.
- DEBTS ARISING FROM CAR ACCIDENTS- If you were in an accident an your negligence was the cause of that accident, then you probably owe the other injured party money. Often times people are uninsured or their insurance doesn't cover the extent of the damages incurred. In situations where the debtor's careless or imprudent driving were the cause of the accident, Bankruptcy can discharge those debts. HOWEVER, it is important to contrast careless and imprudent driving with RECKLESS driving, such as intoxicated driving. Personal injury damages suffered by another from the debtor's driving under the influence are NOT dischargeable.
- OBLIGATIONS UNDER LEASE AND CONTRACTS- This is a particularly important discharge in the times of Covid. Businesses across America have been forced to shutdown because of the Covid pandemic. When no revenue is coming in, the resulting lease obligations can force a business to break its lease. Often times for small business owners the landlords have made the small business owner sign a personal guarantee. Personal guarantees attach to the person who owns the business. This can create massive debts owed to the landlord. Bankruptcy can discharge these debts. The Trustee overseeing the bankruptcy case has the option to assume the lease. If the Trustee assumes the lease, then it can find a person to purchase or sublease the rental premisses. In a majority of scenarios it is not profitable for the trustee to do so and therefore the trustee will not assume the lease. If the lease is not assumed it is essentially abandoned and the lease will be discharged in bankruptcy.
- PERSONAL LOANS AND PROMISSORY NOTES- Most of these types of debts are dischargeable. However, if the creditor can prove that you acted fraudulently in assuming the debt, then it may not be discharged.
Debts that are NOT discharged.
- DOMESTIC SUPPORT OBLIGATIONS- Some debts just shouldn't be discharged for ethical, moral, and legal reasons. Domestic Support Obligations are some of those debts. The most common type of domestic support obligations are child support, alimony, maintenance and support payments. For domestic support obligations to be nondischargeable the obligation must have been imposed in a separation agreement, divorce decree, or property settlement agreement. Additionally, a domestic support obligation is nondischargeable if there was an order from a court authorized by law to impose those support obligations. Lastly, if the support obligations came from a child support enforcement agent or other governmental entity then the obligations are not dischargeable.
- FINES, PENALTIES, AND RESTITUTION- You can't discharge fines that were imposed by a federal, state, or local government. These fines include fines for infractions, misdemeanors, or felonies. Additionally, fines imposed by a government agency for violating agency regulations are nondischargeable. This is an important one for many businesses that have run afoul of EPA regulations.
- CERTAIN TAX DEBTS- Generally, you can not discharge debts from income taxes that were not filed properly or intentionally avoided. If the IRS has sent you a letter about your tax debt it is important to consult a lawyer before you enter bankruptcy. There are specific instances where some tax debts may be discharged but they are scenario specific and your best bet is to speak with a lawyer about your specific scenario to see if those debts can be discharged.
- INTOXICATED DRIVING DEBTS- If you have killed or injured someone due to driving while intoxicated those debts associated with that reckless behavior will never be discharged. This only applies to personal injuries, property that is damaged due to your intoxicated driving may be dischargeable.
- STUDENT LOANS (in a majority of scenarios)- Discharging student loan debt is extremely difficult. It is not impossible but it is highly unlikely you will qualify to discharge your student debt. See my other blog post dedicated to student debt forgiveness for more information on the topic.