There are certain debts that are not dischargeable in bankruptcy; meaning, they cannot be eliminated and you are obligated to continue paying these debts, despite having filed a bankruptcy petition. These debts include domestic support obligations, tax debt and student loan debt. However, there are some exceptions to the dischargeability of these debts and areas where bankruptcy may even help you in paying down the debt.
Domestic Support Obligations include any spousal support or child support owed pursuant to a Court order. If you owe any domestic support obligations, they are never dischargeable in bankruptcy. However, if you are past due on your domestic support obligations, it could be beneficial to file a Chapter 13 bankruptcy. You would be able to discharge any other unsecured debt and pay back the domestic support obligation in payments over five years or less.
It is a common misconception that tax debt is non-dischargeable as well. However, the dischargeability of tax debt depends on a few things. Tax debt that became due more than three (3) yeas ago, where the tax returns were filed at least two (2) years ago and assessed by the IRS at least 240 days ago (or 8 months) may be dischargeable in bankruptcy. As with the domestic support obligations, if your tax debt does not fall into the circumstances where it might be dischargeable, it could be beneficial to file a Chapter 13 bankruptcy to get rid of other debt and create a reasonable payment plan for paying back the taxes.
Student loans are also sometimes dischargeable in bankruptcy, but this is more difficult to accomplish. To discharge student loans, you need to file an adversary proceeding, or a lawsuit within the bankruptcy, to prove that an undue hardship exists and will continue to exist even after receiving a bankruptcy discharge for other debts. This can be hard to prove, but in some instances a bankruptcy judge may grant a partial discharge of student loans.
There are also some debts that are dischargeable in a Chapter 13 bankruptcy, but not a Chapter 7 bankruptcy. These include: marital debts or debts arising out of a settlement agreement that are not debts arising from support, debts incurred to pay a non-dischargeable debt, HOA fees, court fees and more. A knowledgeable bankruptcy attorney can assist you in determining which of your debts will be dischargeable in bankruptcy and which will not be. Mallory Powers is a co-contributor to this press release.