What Kind Of Debt Is Typically Dischargeable In A Chapter 7 Bankruptcy?
In a chapter 7 bankruptcy, basically any debt you have is dischargeable. There are a few exceptions that are not dischargeable but your credit card, medical bills, mortgages, car payments, loans, all of those are dischargeable debts. It is actually easier to talk about what is not dischargeable just because there is a shorter list. What is not dischargeable are some things that the law does not allow you to discharge usually for public interest reasons. For instance, you cannot discharge a domestic support obligation.
If you owe child support, the law says that it would not be right for you to be able to get out of that by filing bankruptcy. Child support is not dischargeable. If taxes are not fairly old, they are not dischargeable either. The big kind of buzz that everybody seems to have a handle on is student loans, those are generally not dischargeable. Student loans are a lot more complicated but for the most part, you are not going to be able to discharge those loans.
There are a few other things. For instance, if you have been convicted of fraud, debt from a fraud or something similar, that is not dischargeable. If you have willfully or maliciously injured someone and there is a judgment against you for the damages that you have caused, those are not dischargeable. Issues like that are very narrowly constructed and limited exceptions, but everything else is dischargeable in a chapter 7 bankruptcy.
Which Debt Would Not Be Forgiven In A Chapter 7 Bankruptcy?
Recent taxes, student loans, and domestic support obligations. Those are the most common.
Will Student Loans Be Dischargeable In The Future?
It is expected that there are going to be some changes to the standards in some point in the near future, within a few years maybe. The standard now is that student loans are not non-dischargeable in the same way that other debts are non-dischargeable. For instance, domestic support obligation is definitely always non-dischargeable. Under no circumstances under which you can get a domestic support obligation discharged.
Student loans are a bit different. What the code actually says, is that they are not dischargeable unless they are causing an undue hardship. The question is, what does undue hardship mean? For a long time, that standard of undue hardship was extremely high. Courts were looking at situations where the average person, if they have these student loans and they cannot possibly make enough money to pay for them, you tell them the situation and they think, “Yes, that is definitely an undue hardship.” However, the courts are not finding it that way.
It is extremely rare for someone to actually convince the court that they had an undue hardship. Overtime, there is more litigation about it and different courts have come out with different standards and ideas about what it means. Now, it is to a point where there is a lack of clarity.
For no other reason than just to clarify things, congress is going to have to come up with something that gives a better standard for the student loan question. That is something that is more objective. On the other hand, it is just a huge problem in our economy. There are a lot of people that have student debts and it has become out of control. Student loans are causing major problems. For that reason, there is going to have to be a loosening of the standard, maybe some sort of compromise where some of the debts are dischargeable. No one can predict the outcome.
What Will Someone Be Able To Keep In A Chapter 7 Bankruptcy?
Most of the time, you can keep most assets. However, this depends on each person. For the most part, chapter 7 cases are no asset cases. There are no assets that are exempt, or that the trustee is going to bother with taking and executing liens to sell them. Around 95% of the cases that are filed under chapter 7 are like that.
As far as your personal items, there are technical exemption limits to some of those things. For example, there may be a $1,000 for your furnishings. However, that is just not worth enough for the trustee to bother with going through everything and sell them. When you file chapter 7, you are going to keep everything with the exception that if you have a house or car, and it has a significant amount of equity and you are filing with the spouse, then you may lose that. You are also probably going to have to give up your tax returns depending on what time of the year you file as well.
If you are not sure Which Debts Are Discharged In Chapter 7 Bankruptcy, call the Koehler Law Offices PLLC for a FREE 20 Minute Initial Consultation at (801) 441-2013 and get the information and legal answers you’re seeking.