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Bankruptcy Discharge

Bankruptcy is a process created by federal law that provides relief for debtors, who can either eliminate their debts or repay their debts. Chapter 7 "liquidation" is the process by which debtors wipe out or "discharge" many of their debts. Chapter 7 is known as "straight" bankruptcy. Chapter 13 "reorganization" is the process by which an individual or a business prepares a plan for repayment of creditors.


Can a Chapter 7 debtor truly "wipe out" all of his or her debts?

Discharge of indebtedness is the process by which a Chapter 7 debtor eliminates a debt during bankruptcy proceedings. A creditor or lender cannot collect a debt that has been discharged. The debtor is freed from that financial obligation. For example, a Chapter 7 debtor usually can discharge personal or unsecured loans, medical bills, most credit card debt, and some "old" taxes. However, not all types of debts can be eliminated in a bankruptcy proceeding. These debts are called "non-dischargeable."

For which debts does a Chapter 7 debtor remain liable?


Bankruptcy does not always eliminate all debts. The following types of debt cannot be discharged in Chapter 7 bankruptcy:

* Alimony or spousal maintenance


* Child support


* Debts incurred by fraud or dishonesty


* Debts incurred by fraud while acting in a fiduciary capacity, such as a trustee


* Embezzled sums


* Debts that the debtor fails to include or list on the bankruptcy "schedule"


* Recent unpaid taxes


* Debts incurred in violation of securities fraud law


* Fines or penalties imposed by government agencies, including criminal fines


* Claims due for accidents incurred due to driving while intoxicated


* Most student loans


* Debts incurred after filing for bankruptcy


* Most larger purchases made shortly before filing bankruptcy, especially for luxury goods or services

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

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