THE SEVEN DEBTS YOU CAN’T DISCHARGE IN BANKRUPTCY

AND HOW TO DISCHARGE THEM ANYWAY  

There are 7 Major Debts that supposedly can not be discharged in Bankruptcy, including Taxes and Student Loans.  But Student Loans and Income Taxes can be discharged under certain conditions. 

1. Child Support and Alimony can be repaid in a Chapter 13 bankruptcy, but cannot be discharged in a Chapter 7.

2.  Income Taxes over 3 years old are discharged in bankruptcy!  You must file the returns, no assessments can be made within 240 days, you can avoid liens on homes in bankruptcy for the amounts above the protected equity in the home, there must be no fraud involved, and any offer in compromise or bankruptcy will increase the time period. In a Chapter 13 bankruptcy taxes may be paid back for a small percentage and penalties and interest waived.  If taxes are not filed prior to filing the 13 interest and penalties continue to accrue.  Example: For 2008 you cannot bankruptcy 2007, 2006 or 2005 tax returns. 

3. Federally Guaranteed Student Loans  Bankruptcy now only allows hardship discharges.  The Bankruptcy court considers 3 factors.    

a. Whether you made good faith efforts to repay    (not required if you never had the money); 

b. Your ability to repay now and in the immediate future; and 

c. Whether it creates hardship to your family if you repay.  

You also normally need to file for the Ford loan program prior to filing to be considered for a hardship.  Private Student loans that are not tax deductible may be bankruptable.

 4.  Debts due to theft or fraud. Are often dischargeable in a Chapter 13.   Only relied on proven, material and intentional misrepresentations are fraud in a Chapter 7.   The lender has a hard burden to prove fraud.  However, a charge or cash advance over $500 or purchases over $750 for luxury items within 60-90 days before filing are assumed fraudulent so timing and amounts are important.  Generally a creditor will not object unless the amount is over $1000.00 and if an objection is made the Debtor is only required to repay the amount charged.   

5. Criminal Acts and Intentional Injuries are non dischargeable in bankruptcy.  However, if injured parties fail to file an adversary proceeding it is discharged in bankruptcy anyway.   Bankruptcy won't stop criminal courts from ordering criminal restitution.  Bankruptcy is only a defense in Civil Court. 

6. Drunken Driving Accidents.   You can get your license back if you drove uninsured.  Drunk driving accident victims must file an adversary actions in bankruptcy court and prove drunk driving or they are forever barred from collecting. 

7. Marital Property Settlement Agreements.  Bankruptcy Courts rarely alter these agreements.   But if one spouse files often the other ex spouse files.        

If you have these debts, list them anyway.  There are ways to bankrupt many of them but you should contact an attorney. 

The Bankruptcy Manual fully discusses how to bankrupt debts which many people and attorneys think are not bankruptable.   There are exceptions to almost every rule.   Download your free copy.