When filing for bankruptcy, one of the most common things people look forward to having is the majority of their unmanageable debt dismissed or discharged. Sadly, this isn’t a reality for every person who experiences bankruptcy.
Not at all debt is qualified for discharge during bankruptcy. Regardless of which chapter of bankruptcy you file for, there are some types of debt which will not be cleared or covered by the acquittal of your case. Knowing these in advance can help prepare you for the best possible outcome during the bankruptcy process—and prevent unpleasant surprises later!
What Debt Does Bankruptcy Not Cover?
Some debts cannot ever be discharged during bankruptcy, regardless of any other circumstances. These are consistent from state to state and include legal obligations such as child support and alimony. Other types of debts that can never be dismissed by a bankruptcy discharge include restitution owed for legal infractions (penalties owed for breaking the law), wrongful death penalty costs, and certain types of tax debt.
If you owe condo, coop, or HOA fees—or have retirement-related debt—you will continue to be responsible for these payments during and after a bankruptcy. Likewise, if you refuse to list or ‘schedule’ a debt as part of your bankruptcy filing, there is no way that it can be dismissed as part of a bankruptcy discharge unless that creditor had prior and specific knowledge of your bankruptcy filing and is willing to release your debt as part of it.
Other types of debts are simply difficult to discharge. Student loan debt is famous for being difficult to discharge. Proving long-term and ongoing financial hardship that will make repaying this debt impossible or improbable is typically the only way to get this type of debt released—and this is a difficult task, even for an experienced legal professional. More lenient policies are making it easier to get student debt discharged than it has been in the past, but it remains a tricky proposition in regard to bankruptcy.
In some cases, creditors can even appeal the automatic stay process that keeps them from pursuing compensation of debts owed during your bankruptcy. This means that the protection that bankruptcy would typically afford you would be compromised at the order of the court, and these creditors would be allowed to pursue repayment of your debt regardless of your active bankruptcy case. This can leave you and your creditor stuck in a seemingly endless loop of appealing to the courts to explain why you deserve relief from the other’s actions. This makes determining what debt does bankruptcy not cover nearly impossible—and the process of bankruptcy itself far more stressful than it needs to be!
Debts Worth Arguing Over
Some debts are discharged unless the creditor successfully argues that they should not be. Being informed of these can help prepare you for the chance that your creditors will pursue payment of these debts. These debts may include:
- Debts belonging to creditors not listed on your bankruptcy paperwork
- Fraud-related debts
- Debts related to willful or malicious acts
- Debt incurred from larceny, embezzlement, breach of fiduciary duty, etc.
- These guidelines also apply to debts incurred from the purchase of luxury items or services, with specific regulations. For purchases of more than $725, they must have been made within 90 days of filing. Cash advances of over $1000 taken out within 70 days of filing also fall under these guidelines.
No Absolute Right to Discharge
What debt does bankruptcy not cover? If you don’t follow the rules, the answer could be all of it. After all, there is no absolute right to discharge of a bankruptcy. Too many people enter the bankruptcy process believing that they can behave any way they see fit and receive a discharge and walk out of court with all of their debts left behind.
Failing to follow the rules of your state and the national bankruptcy law can result in an objection on the part of the bankruptcy trustee to discharge your debt. How can you stay within the lines and play by the rules? It helps to know them.
Here’s what to do if you’re hoping for an uncomplicated discharge:
- Provide all request documentation, including tax documents in a timely manner
- Do not hide, transfer, or destroy assets, records, books, documents, or otherwise try to commit fraud or hinder any investigation into your finances related to your bankruptcy case
- Ensure that all of your assets can be accounted for
- Show up for all requested or required court appearances and be honest and forthcoming with those you speak with regarding your bankruptcy
- Complete a financial management course during your bankruptcy to ensure mastery of financial concepts and a better outlook for your financial future
- Be sure that you don’t file for bankruptcy too soon after previously doing so, as this may cause your case to be rejected for discharge automatically.
- In some cases, you can follow all the rules to the letter and still find out that there are perfectly legal reasons why your creditors are capable of standing in the way of your discharge. When this happens it can be devastating. However, with the right counsel and some research on your side, you can expect to move through a bankruptcy with relatively little stress.
It is important to always discuss the details of your case with a local legal professional who specializes in bankruptcy and related issues. Bankruptcy law firms in Delray Beach can be upfront with you about your options for debt relief. If filing for bankruptcy is the plan best for you, our legal team at The Law Office of John E. Mufson will take the time to fully explain your options so that you’re truly confident in the decisions you’re making. Call us today at (561) 272-1003 for a free consultation.