Dischargeable Debt | Consumer Debt Group


Dischargeable Debts
The scope of the discharge is different in each chapter. The Bankruptcy Code makes the Chapter 13 discharge more encompassing, to encourage individuals to use Chapter 13 to repay a portion of their debts. In other words, most unsecured debts are dischargeable. Some debts are dischargeable under Chapter 7 while some are dischargeable under Chapter13.

Chapter 7 Dischargeable Debts
Loans, credit card debts, judgments, medical bills, old income taxes are dischargeable under Chapter 7.

Chapter 13 dischargeable Debts
In Chapter 13, only family support, fines, student loans, and drunk driving judgments are non dischargeable while rest are dischargeable. Debts incurred by fraud or intentional wrongdoing may be discharged if the debtor can demonstrate the plan is proposed in "good faith". Below are given a list of debts, which can be stated as Dischargeable Debts. Personal loans Credit cards Repossession deficiencies Auto accident claims Judgments Business debts Leases Guaranties Negligence claims Tax penalties over 3 years old Income taxes that aren't priority taxes

The following debts:
Property settlements or division of debts in divorce Willful and malicious injuries to others Embezzlement Debts incurred by fraud or dishonesty Debts arising from breach of fiduciary duty, can be said or proposed as Dischargeable Debts.

In exchange for the receipt of a discharge, a debtor must turn over all non-exempt property to a court-appointed trustee. The trustee is required to sell the property and distribute the proceeds to creditors according to the priorities established by the Bankruptcy Code. Frequently, creditors receive no distribution from a bankruptcy case. In some cases, a debtor is denied a discharge and thus continues to be obligated on all the debts that were the subject of the bankruptcy. Reasons for the denial of a discharge include court determinations that the debtor has concealed assets, has fraudulently transferred assets to avoid payment to creditors or has made a false statement under oath. Such acts may also be the subject of criminal proceedings against the debtor, which may result in fines or imprisonment.

In those cases where a debtor receives a discharge, certain debts may nonetheless be accepted from discharge. These include obligations for alimony or child support, certain taxes and student loans, and debts incurred by false statements or representations. If the Bankruptcy Court determines that a particular debt was incurred through the debtor's fraud, that debt may likewise be accepted from discharge.

Income taxes owed that are over three years old may be discharged in a Chapter 7 bankruptcy under certain circumstances. If the tax liability is dischargeable, the individual filing a Chapter 7 bankruptcy will never have to pay that tax liability. In order to be dischargeable, the tax return that resulted in the debt must have been filed over two years before the person files the bankruptcy proceeding. Income taxes owed that are less than three years old or in which the returns were not filed more than two years ago in all likelihood will not be discharged.

When there is a personal liability for a debt, a creditor with a judgment can use legal processes, like levy and garnishment, to reach the non-exempt assets and earnings even though those assets were not pledged as collateral and the debt was unsecured. The bankruptcy discharge eliminates the debtor's personal liability for a discharged debt.

Liens

Even though personal liability is discharged, most liens, the liability of an item of property for a debt secured by that property, pass unaffected through bankruptcy unless a court order modifies or voids them. So, after a bankruptcy discharge, a lien may remain a charge on an asset the debtor owned when the case was commenced, but that debt cannot become a lien on any assets that the debtor acquires after the bankruptcy discharge.

Illustrations
A home equity loan remains as a lien on the real property after a bankruptcy discharge. If the loan is not paid, the lender cannot sue the discharged debtor to attempt to collect the debt out of current wages because the discharge has eliminated the debtor/borrower's personal liability for the loan. The creditor can foreclose on the lien on the pledged property, however.
A home equity loan remains as a lien on the real property after a bankruptcy discharge. If the loan is not paid, the lender cannot sue the discharged debtor to attempt to collect the debt out of current wages because the discharge has eliminated the debtor/borrower's personal liability for the loan. The creditor can foreclose on the lien on the pledged property, however.

A judgment lien may remain a charge on assets owned before the bankruptcy, but does not attach to assets acquired after the bankruptcy is filed.

Permanent Injunction
The bankruptcy discharge is a court injunction against certain actions relating to debts that existed before the bankruptcy was filed. The discharge injunction replaces the automatic stay that comes into place when a bankruptcy case is commenced. The discharge injunction prevents the creditor from beginning or continuing any lawsuit to enforce a discharged debt against the debtor or the debtor's property. Any judgment as to a debt arising before the bankruptcy was commenced is void after the discharge. The discharge encompasses not only debts that were liquidated as of the filing of the case, but any liability that arises from events before filing so long as the affected creditor, or would-be creditor, got notice of the bankruptcy.
Example: the liability of the debtor for an automobile accident in which he was at fault is discharged, even though there has not been a trial with respect to the accident. Likewise, the liability of the debtor on the pre petition guaranty of someone else's debt is discharged.