The goal of filing Chapter 7 bankruptcy is the possibility of having some or all of your debts discharged. When a debt is discharged, it is essentially wiped away and you never have to repay it. However, there are certain debts and obligations that can never be discharged in a Chapter 7 bankruptcy.
In general, the following kinds of debt cannot be discharged:
All debts that you didn’t list on your bankruptcy petition will not be discharged;
- Criminal fines and debts: All court fees and court-ordered judgments related to any criminal activity cannot be discharged — neither are any judgments or debts incurred as a result of personal injury or death to others caused by your own negligence or criminal activity;
- Student Loans: Although there is a general policy not to discharge student loan debt, in some very rare circumstances, student loans can be discharged, particularly if a hardship condition exists;
- Taxes: Most tax debt cannot be discharged in bankruptcy. However, if you meet the following requirements your tax debt may be discharged:
- The taxes are income taxes. Taxes other than income, such as payroll taxes or fraud penalties, can never be eliminated in bankruptcy.
- You did not commit fraud or willful evasion. If you filed a fraudulent tax return or otherwise willfully attempted to evade paying taxes, such as using a false Social Security number on your tax return, bankruptcy can’t help.
- The debt is at least three years old. To eliminate a tax debt, the tax return must have been originally due at least three years before you filed for bankruptcy.
- You filed a tax return. You must have filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy.
- You pass the “240-day rule.” The income tax debt must have been assessed by the IRS at least 240 days before you file your bankruptcy petition, or must not have been assessed yet. (This time limit may be extended if the IRS suspended collection activity because of an offer in compromise or a previous bankruptcy filing.)
- Fraudulent debts: Any debt that the court finds was obtained fraudulently or illegally will not be discharged. For example, if you ran up debt on a credit card shortly before filing bankruptcy (within 60 to 90 days of filing), the court will refuse to discharge that debt. In addition, if you lied on a loan application to obtain funds — that related debt will not be forgiven in bankruptcy;
- Alimony and child support payments (court-ordered) are not dischargeable; Divorce and property settlements are not dischargeable unless the other party agrees to it.
Randy M. Creighton, Esq.
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