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Debts You Can and Can't Discharge

Bankruptcy Eliminates Debts: Credit Card, Medical, Repo, Foreclosure, etc.

Why do people file bankruptcy? Answer: to eliminate or "discharge" their debts so they can live debt-free. By filing bankruptcy and receiving a court-ordered discharge, bankruptcy filers would be discharged from the obligation to pay creditors any of the debt owed prior to the date the bankruptcy case was filed; however, some exceptions apply. But, most debt and for many all debt is forever eliminated. Gone are credit card debts, medical debts, personal loan debt, repossession debt, deficiency debts, mortgage note debt, and more.

The bankruptcy court enters an order of court granting the person who files bankruptcy a discharge of all dischargeable debts. This order includes a notice to creditors that these creditors may not attempt to collect debts owed prior to the date the case was filed. In fact, a bankruptcy "injunction" is created prohibiting creditors from any form of collection against the person who files. The court could impose punishments against any creditor who ignores the bankruptcy injunction and attempts to collect debt against the person who filed.

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For a free consultation, contact Attorney Robert Schaller by completing the Contact Us form on this web site or calling at 630-655-1233.



Recent Court Cases

Below are some interesting legal cases involving Americans’ attempts to eliminate or "discharge" their debts. These are cases where a trustee or creditor has attempted to deny a debtor's discharge. The cases offered on this website are removed and replaced periodically with newer cases. So I urge you to check back to this website periodically for the latest developments. However, prior cases are transferred from this webpage to my blog for you to retrieve. You are encouraged to view my bankruptcy blog to discover more information about eliminating or discharging debts. Visit Your Bankruptcy Advisor Blog or contact me to talk to an experienced bankruptcy attorney.

  1. In re Booth, 410 B.R. 672 (Bankr. E.D. Wash 2009). A chapter 7 bankruptcy debtor brought an adversary complaint against a student loan creditor seeking discharge of the student loan debt pursuant to Section 523(a)(8) of the Bankruptcy Code alleging that an “undue hardship” would result if the debtor had to repay the student loan debt. Prior to filing bankruptcy, the debtor had participated in a student loan deferral payment program. As a result of the program and debtor’s deteriorating financial position, the student loan creditor established a zero dollar per month short-term repayment plan with the balance to be paid much later. Nevertheless, debtor filed for bankruptcy and sought a complete discharge of all the student loan debt.

    The student loan creditor opposed the complete discharge of the student loan debt. In fact, the creditor filed a motion for summary judgment seeking an order finding the student loan debtor NOT eligible for a bankruptcy discharge AS A MATTER OF LAW because the deferral payment program had granted debtor a zero dollar per month short-term repayment plan. In short, the student loan creditor believed that the debtor could not establish “undue hardship” as a matter of law since debtor had agreed to a zero dollar short-term repayment plan and therefore no hardship existed, much less “undue” hardship.

    The Court rejected the student loan creditor’s argument and denied the motion for summary judgment. The court noted the difference in relief granted by both options: (a) the bankruptcy discharge offered permanent relief by eliminating the student loan debt forever, whereas (b) the deferral payment program only offered short-term relief with the balance coming due later. Next, the court focused on the factual review given by both options: (a) the bankruptcy court would review the facts of each case on a case-by-case basis to determine if the repayment of the student loan debt would result in an undue hardship upon the debtor, whereas, (b) the deferral payment program gave no individual review, instead relying upon a formula to determine loan payments.

    The conclusion is that the student loan debtor was allowed to go forward with the bankruptcy case and will be offered an opportunity to prove that the payment of the student loan debt would be an undue hardship on the debtor and debtor’s dependents.

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Debts that are Discharged:

Credit card debts are discharged and constitute the single most common form of debt. In fact, many people file bankruptcy only because their credit card debts are overwhelming and unmanageable. Imagine a life without credit card debt! Medical bills are also a type of debt that is discharged. Say good-bye to doctor, hospital, and other medical bills. These medical creditors cannot make you pay. Some people have experienced a vehicle repossession and a subsequent "deficiency" assessed against them because the sale of the repossessed vehicle generated less than the amount owed to the vehicle lender. That repossession deficiency debt will be eliminated by bankruptcy. Some people are stuck with mortgage obligations that they cannot afford to pay and are attempting to move to another location, but cannot afford to pay both the mortgage and the rent on the new home. Bankruptcy offers a solution; these people can move to their new home and file bankruptcy to eliminate the obligation to pay the old mortgage payment. Plus, unpaid property settlement obligations relating to a divorce if a chapter 13 bankruptcy case is filed.

Debts that are Not Discharged:

Regrettably, not all debts are dischargeable. For public policy reasons, Congress decided to made certain categories of debt non-dischargeable. That means these categories of debts are not eliminated by filing bankruptcy. Below is a partial list of these non-dischargeable debts.

  • most income taxes.
  • student loans, unles the filer can demonstrate "undue hardship."
  • alimony, maintenance or support.
  • fines, penalties, forfeitures, or criminal obligations.
  • liens on real property.
  • debts not properly listed on bankruptcy schedules.
  • debts for personal injuries or death caused by the operation of a motor vehicle while intoxicated.
  • NSF or "bounced" checks.
  • consumer debts aggregating more than $500 for luxury goods or service purchased within 90 days before the date the bankruptcy case was filed.
  • cash advances aggregating more than $750 within 70 days of the date the bankruptcy case was filed.
  • fees or assessments becoming due and payable after the date the bankruptcy case was filed relating to any condo, cooperative, or homeowner's association.
  • debts incurred by fraud.
  • debts relating to recent credit usage or recently incurred debt without the ability or intent to repay
  • property settlement obligations relating to a divorce if a chapter 7 case is filed.

Debts that May Not be Discharged:

Sometimes an otherwise dischargeable debt becomes non-dischargeable because of the "bad" actions of the person filing bankruptcy. These bad actions cause the person filing bankruptcy to be denied a discharge. For public policy reasons, Congress decided to make the debts related to these bad actions non-dischargeable. Below is a partial list of these bad actions.

  • failing to fully disclosue all assets, liabilities, income, expenses, and transfers.
  • lost, missing or inadequately maintained financial books and financial records.
  • financial records that are insufficient for the trustee to ascertain the true financial condition of the person filing bankruptcy.
  • reckless conduct.
  • intentional torts, including sexualt assault.
  • willful or malicious conduct resulting in injury.
  • concealing assets from the trustee.
  • excessive debt demonstrating a pattern of incurring debt without the intent to pay.
  • bad faith.

Free Bankruptcy Consultation

For a free consultation, contact Attorney Robert Schaller by completing the Contact Us form on this web site or calling at 630-655-1233.