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Non-Dischargeable Debts in Bankruptcy

The bankruptcy law has a number of rules concerning the discharge of debt. Availability of discharge depends on the Chapter under which the bankruptcy proceedings are conducted and whether the debtor is a person or organization. One rule, which applies in all Chapters, however, is that a debtor guilty of misconduct during the course of the bankruptcy proceeding will be denied discharge.

For policy reasons, Congress made certain types of debt nondischargeable when it crafted the bankruptcy laws. Depending on the chapter under which bankruptcy is filed, these include:

  1. certain taxes and fines;
  2. debts arising out of fraudulent acts on the part of the debtor;
  3. debts not mentioned by the debtor;
  4. alimony, maintenance and support payments;
  5. debts arising from a willful and malicious injury;
  6. educational loans;
  7. debts owed as a result of driving while intoxicated;
  8. debts that were not discharged in prior bankruptcy proceedings; and
  9. certain debts arising from obligations to banks and similar institutions.

In order to encourage debtors to make efforts to repay some debt, Congress has allowed a greater number of debts to be discharged under those chapters that require the debtor to set up a payment plan to repay a certain amount of the debt.

Chapter 7 is the most common form of bankruptcy. Individuals and businesses may file for Chapter 7 bankruptcy, but the discharge of debt under Chapter 7 applies only to individuals, not businesses. All of the nondischargeable debts listed above apply in Chapter 7. The rest of the debts are discharged except, generally speaking, those to which the debtor obligated himself after he was declared bankrupt by the bankruptcy court.

Chapter 13 is available only to individuals. Under chapter 13, the debtor creates a three to five year plan for repayment of all or a portion of his or her debt. As an incentive to successful completion of the plan, the rules allow discharge of a greater number of debts. Nondischargeable debts in Chapter 13 are alimony, maintenance and support obligations, educational loans, driving while intoxicated obligations, payments imposed on the debtor as a result of a criminal conviction, and certain long term debts. When a debtor can not successfully complete a chapter 13 plan, he or she may choose to convert the case to a Chapter 7 bankruptcy or to request a hardship discharge. A hardship discharge will only be granted by the court under certain limited circumstances and will discharge no more debts than Chapter 7 bankruptcy would.