In most cases, debtors who file for bankruptcy aims for their debts to be completely wiped out or discharged and leave them with a clean financial slate to start over. However, this is not always the case with most bankruptcy chapters. Though there are certain discharges offered to different chapter cases in bankruptcy, only Chapter 7 allows debtor to be released from their financial obligations to creditors.
How a discharge works in bankruptcy
In the case of bankruptcy, an order of discharge is an iron-clad order by the bankruptcy court releasing debtors from their financial liabilities. In simpler terms, the creditors no longer have a right to claim whatever the debtor’s owe them once the final discharge order has been released.
Most of the time, cases filed under Chapter 7 bankruptcy automatically receives a discharge upon the completion of the cases. The court usually grants debt discharges about 60 days after the 341 hearing which is also known as the Meeting of Creditors. This only means that from the time a debtor files a case, it will only take them at least four months in the process to obtain an order of discharge by the bankruptcy court.
However, there are some cases wherein a discharge is contested by creditors which results to a delayed discharged order. Also, a discharge can be delayed when the debtor fails to provide some necessary documents requested by the bankruptcy court.
Debts discharged in Chapter 7 bankruptcy
It is a known fact that not all types of debts can be discharged under Chapter 7 bankruptcy but this chapter is still the most popular among bankruptcy chapter cases since they allow most debts to be discharged.
However, the best way to know which types of debts are dischargeable under this bankruptcy chapter can be found on the Bankruptcy Code of the U.S. The Code specifies 19 debt categories which are non-dischargeable to make the distinction easier. That means that if such a debt does not fall under the non-dischargeable debt category, then those debts can be discharged.
Non-dischargeable debts specified
- Tax or customs duties which includes tax returns or debts due to fraudulent taxes or any other similar tax liabilities are not subject for debt discharge.
- Debts incurred due to fraud whether by money, property, or service, cannot be discharged in Chapter 7 bankruptcy.
- Unscheduled debts – failing to schedule or listing a debts in the bankruptcy petition makes that debt not eligible for discharge.
- Fraud and defalcation – this is exclusive to defalcation in the case of fiduciary, and fraud from embezzlement or larceny.
- Domestic support obligation – this involves fees for spouses, child support, and/or alimony.
- Willful and malicious injury – this involves the debtor deliberately hurting another or destroying another entity’s property. The debtor is still required to pay by the bankruptcy court and is no way allowed to be discharged of the debt.
- Fines and penalty – this covers payables to government units other than a tax penalty.
- Educational or student loan – a debtor is still required to pay their student or educational loans unless otherwise waived by the bankruptcy court.
- Injury caused by the debtor under unlawful operation – debtors are required to pay their debts when their actions caused personal injury or even death especially in operation of a motor vehicle, aircraft or vessel. Unlawful operation includes a debtor who operates under the influence of drugs, alcohol, or any other similar substance.
- Denied discharges – debts that are denied a discharge prior to a bankruptcy case will also be considered as non-dischargeable debts.
- Fraud and defalcation concerning any insured credit union or depository institution.
- Failure to comply with requirements to maintain the capital of an insured depository institution.
- Failure to comply with any payments set for an order of restitution issued under the United States Code’s title 18.
- Taxes unpaid to the United States and other taxes incurred and unpaid to other government units aside from the United States as well as fines and penalties imposed under the state’s federal election law.
- Financial obligations to a spouse or former spouse or a child or children that is not described on paragraph 5 of the specified non-dischargeable debts.
- Order for relief assessment fees like in a cooperative corporation or a membership association fee.
- Prisoner fees imposed by any court.
- Fees owed to stock bonuses, profit sharing organizations, pensions, or any other similar plans established under the Internal Revenue Code of 1986 is not permitted for discharge.
- Fees incurred due to any deceit, fraud, manipulation, and/or violation of the Federal Securities Law.
Debtors should know what these exemptions are to help determine whether or not a debt from the Chapter 7 bankruptcy case is eligible for discharge.
Debts qualified for discharge under Chapter 7
Now that we have established the different exemptions to bankruptcy discharges, the next best thing is to see which type of debts is qualified for discharge. The types of debts that are discharged in Chapter 7 bankruptcy are:
- Credit card late fees and overdue charges;
- Payable collection to agencies;
- Medical bills;
- Personal loans;
- Past due on utility bills;
- Dishonored checks except those based on fraud;
- Business debts;
- Debts owed to rents and lease agreements;
- Judgments fees owed on civil court like car accident claims except for those proven under unlawful operation and negligence claims;
- Attorney fees with the exception of legal fees for alimony, spouse and/or child support;
- Overpayments on social security;
- Overpayments and veterans assistance loans;
- Deficiency balances incurred through repossession.
Other information on debt discharges in Chapter 7 bankruptcy
There are some cases when student loans are discharged although they are specified under the 19 categories of non-dischargeable debts. This type of debt is waived and is discharged when the bankruptcy court proves that not doing so will make the debtor’s dependents suffer in the process. Debts on vehicle loans and house mortgages can also be discharged but the debtor stands to lose their car or homes in the process.
Given that bankruptcy can be a complex process without sufficient knowledge, debtors are always advised to seek the help of a professional bankruptcy attorney to help with their cases. With the help of a bankruptcy lawyer, debtors will have a more guided path on filing their bankruptcy case especially in determining which debts are eligible for discharge in Chapter 7 bankruptcy.