Non-Dischargeable Debt In Bankruptcy
Non-dischargeable debt is debt that you cannot get rid of when you file bankruptcy. Dischargeable debt is debt that bankruptcy will eliminate.
When you file Chapter 7 or Chapter 13 bankruptcy, you’ll list all of your debts, whether they are dischargeable or not.
Section 523 of the bankruptcy code sets out what debts you cannot eliminate. Some non-dischargeable debt will automatically be excluded from your discharge order. Other debts require the lender to file an adversary proceeding (lawsuit) in the bankruptcy court and have to persuade the court that you cannot eliminate the debt.
What Debts Are Non-Dischargeable?
Here is a summary of debts that are excluded from your discharge under Section 523:
- Certain taxes, usually those that were due in the three years before the bankruptcy case was filed or where returns were not filed at all (automatically excluded);
- Money or credit obtained through fraud or false pretenses (requires adversary proceeding);
- Debts that were not listed (automatically excluded) – there is caselaw in Colorado that discharges unlisted debts in “no asset” Chapter 7 bankruptcies;
- Debts that involve fraud, embezzlement, or larceny (requires adversary proceeding);
- Domestic support obligations, i.e. child support and spousal maintenance (alimony) (automatically excluded);
- Debts to a former spouse incurred in the course of a divorce. These are considered property settlements instead of domestic support obligation. These debts are automatically excluded in a Chapter 7 bankruptcy but can be eliminated in a Chapter 13 bankruptcy. These debts can be tricky. There is a fine line between a domestic obligation and a property settlement.
- Debts caused by the willful and malicious injury of another (requires adversary proceeding);
- Government fines, penalties, or forfeitures (automatically excluded);
- Student loans (automatically excluded – requires debtor to file adversary proceeding);
- Debts for death or injury caused by operating a vehicle while intoxicated (automatically excluded).
There are additional debts that are non-dischargeable, but they rarely appear in a consumer bankruptcy case. Of course, we’ll go over all of your debts before we file your case to let you know if there are any potential problems.
Credit Card Use Or Taking Out Loans Right Before Filing Bankruptcy
One potential landmine to consider is debt that is incurred in the 90 days or so before filing bankruptcy.
Any debts owed to single creditor totalling more than $725.00 for luxury goods and incurred within the 90 days before filing are presumed to be non-dischargeable. Cash advances totalling more than $1,000 in the 70 days before filing are also presumed to be non-dischargeable.
So, let’s say I head out to Vegas for the weekend and charge $3,000 on the single credit card and file bankruptcy within the following 90 days. In that situation, the lender can ask the court to exclude those charges. On the other hand, if I use five credit cards and charge $500 on each for my Vegas trip, then the lenders can’t ask the court to exclude the charges without showing another reason (like fraud, which is rare).
The same goes for cash advances, which can include balance transfers on credit cards.
Other Reasons You Won’t Get A Discharge In A Chapter 7 Bankruptcy
The above relates to individual debts that won’t be discharged.
There are, however, issues that can prevent someone from getting a discharge of all of their debts in a Chapter 7 bankruptcy. Section 727 of the Bankruptcy Code sets out the following reasons:
- If the debtor tries to conceal any information requested by the trustee, court, or creditor;
- If the debtor lies on his petition or at the meeting of creditors about his income or assets or any other pertinent information;
- The debtor fails to explain the loss of any assets before or after filing bankruptcy;
- The debtor refuses to obey any lawful order;
- The debtor got a discharge in a separate Chapter 7 bankruptcy that was filed in the previous eight years or in a Chapter 13 bankruptcy that was filed in the previous six years;
- The debtor fails to take the required financial management class after his case is filed.
Talk To An Experienced Denver, Colorado Bankruptcy Attorney About What Debts You Can Discharge
We offer free consultations to individuals and business owners who are considering bankruptcy. During the consultation, you’ll meet with an experienced Denver, Colorado bankruptcy attorney to discuss all of your options and talk about the bankruptcy process. We’ll want to talk about all of your debts, so we can let you know which ones you can eliminate.
The easiest way to schedule an appointment is by going to our scheduling page.
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