Bankruptcy A-Z: N is for Nondischargeable
January 6th, 2012 | 
Author: Bankruptcy A-Z: N is for Nondischargeable.
A discharge is the holy grail of bankruptcy. Getting discharged from debts is the main reason to file for bankruptcy. However not every case ends in a discharge and not every debt is dischargeable.
N is for nondischargeable.
Section 523 of the Code provides for 19 types of debts that are not subject to the discharge in most bankruptcy cases. Among those debts are:
- Taxes that were due within the last three years, the return was filed in the last two years or the tax was assessed within the last 240 days; taxes where the return was never filed; taxes where the return was fraudulent.
- Debts for money, property or services, including refinancing, obtained by false pretenses, or fraud (basically obtaining something by lying).
- Debts not listed or scheduled where the creditor could have filed a proof of claim or a non-dischargeability complaint.
- Debts for fraud or misappropriating funds while acting in a fiduciary capacity, embezzlement, or larceny.
- Domestic support obligations, like child and spousal support.
- Debts for willful and malicious injury to another entity or to the property of another entity.
- Debts for a fine, penalty, or forfeiture payable to the government.
- Student loans, unless you can prove undue hardship.
- Debts for death or personal injury caused by driving under the influence of alcohol or other drugs.
- Certain debts from a prior case where the debtor was denied a discharge or waived a discharge.
- Debts for committing fraud against banks and credit unions.
- Debts for malicious or reckless failure to maintain capital of an insured depository institution.
- Criminal restitution.
- Debts incurred to pay a nondischargeable tax, fine or penalty.
- Debts to a spouse, former spouse, or child, other than support, that you incur in the course of a divorce or separation or in connection with a separation agreement or divorce decree, like being ordered to pay a mortgage by a divorce court.
- Post-petition condo or homeowners association dues until the property is foreclosed upon.
These debts are nondischargeable in Chapter 7 (liquidation), 11 (reorganization) and 12 (family farmer and family fishermen) cases. These debts are also nondischargeable in hardship discharge Chapter 13 cases.
WHAT IS A CHAPTER 13 HARDSHIP DISCHARGE?
Not all Chapter 13 cases are completed. In fact, many are not. However, just because the plan is failing does not mean that the case has to be converted or dismissed. There is a third alternative – the hardship discharge.
Section 1328(b) of the Code provides: “At any time after the confirmation of the plan and after notice and a hearing, the court may grant a discharge to a debtor that has not completed payments under the plan only if”
- the failure to complete the plan is due to circumstances beyond your control;
- unsecured creditors received at least as much as they would have received had the case been filed under Chapter 7; and
- modification of the plan is not practical.
NOT ALL DEBTS ARE DISCHARGED IN REGULAR CHAPTER 13 CASES.
Completing the plan in Chapter 13 does not discharge mortgages where the plan is being used to catch up a mortgage arrearage; a tax that you were required to collect (like sales taxes) or withhold (like income taxes); certain income taxes; numbers 2, 3, 4, 5, 8 and 9 of the above list; criminal restitutions included in a sentence; and restitution for willful or malicious injury or death.
Unless a creditor files an Adversary Proceeding claiming that debts obtained by lying, debts for fraud or misappropriation of funds, or debts for willful or malicious injury are nondischargeable, those debts will be discharged. The remaining debts still will not be discharged.
Consumer debts owed to a single creditor for more than $500 for luxury goods or services incurred within 90 days of filing and cash advances of more than $750 incurred within 70 days of filing are presumed to be nondischargeable. In these cases, the trustee or a creditor must raise this issue and prove it in an Adversary Proceeding or these debts are also discharged. If a creditor does file, it had better be certain, because losing means paying your costs and attorney fees (the Code uses the phrase “substantially justified”) unless there are special circumstances.
DEBTS ARE NOT DISCHARGED IF YOU FILE TOO SOON.
As you can see, every rule has an exception … or two … or …
In addition, debts are nondischargeable if you received a discharge in a prior case and did not wait a long enough time:
- 8 years between Chapter 7 cases;
- 6 years between a Chapter 13 and a Chapter 7 case;
- 4 years between a Chapter 7 and a Chapter 13 case; and
- 2 years between Chapter 13 cases.
All times lengths are measured from filing date to filing date.
Some people think that they can get a discharge in a Chapter 7 case, file a Chapter 13 case less than 8 years later, and then convert when the 8 years passes. The filing date of the original case is still the filing date. It can’t be done.
For example, if you filed a Chapter 7 case in February of 2002 and received a discharge and then filed a Chapter 13 case in January of 2009, you cannot later convert the case to Chapter 7. You would have to dismiss and refile the Chapter 7. In this example, because the Chapter 13 case did not end in a discharge, it is not a bar to getting another Chapter 7 discharge.
SCARED YET?
Don’t be. Just hire a quality lawyer who knows these rules.
If you are having trouble with debt and are in metro Richmond, Hanover or Caroline Counties or anywhere in central Virginia, contact Consumer and Bankruptcy Attorney Mitchell Goldstein at mitch at mitchellpgoldstein.com or (804) 592-1674.
See my prior post for other N posts.
Photo Credit: stevefaeembra
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