At the heart of a U.S. bankruptcy filing is a discharge, which is when the court legally wipes out certain debts so that you no longer owe them. However, not all debts are dischargeable. Before considering bankruptcy, you should understand exactly which debts are dischargeable and which are not.
Dischargeable Debts
- Credit card debt: Typical credit card balance (excluding fraudulent use)
- Medical expenses Medical-related debts: hospital, doctor, dentist, etc.
- Personal loans Tags: Unsecured Personal Loans, Payday Loans
- Overdue utility bills Utility bills: electricity, gas, water, etc.
- Rent arrears: Past rent arrears
- Civil judgments: Debts resulting from some civil judgments
- Business debt Personal guaranteed business-related debt
Non-Dischargeable Debts
- Student loans: Non-waivable except in extreme circumstances (Undue Hardship)
- Tax liabilities: Income taxes for the last 3 years (some older taxes may be forgiven)
- Child Support-Alimony Child support and spousal support are absolutely non-dischargeable
- Criminal fines Court-imposed fines, restitution
- DUI Accident Payments: Compensation for personal injuries caused by drunk driving
- Debts due to fraud Loans or credit obtained with false information
- Recent luxury purchases Big-ticket luxury purchases just before bankruptcy (within 90 days)
Chapter 7 vs Chapter 13 indemnification differences
| Item | Chapter 7 | Chapter 13 |
|---|---|---|
| When to indemnify | Approximately 3-4 months after application | After 3-5 years of repayment |
| Disclaimer | Standard disclaimers | Broader indemnification |
| Secured debt | Indemnification upon surrender of collateral | Include in a repayment plan |
| Protecting assets | Protect only exempt property | You can have any asset |
Reasons for Denial of Discharge
A court may deny immunity if it finds any of the following conduct
- You've hidden or misrepresented assets
- Intentionally destroyed financial records
- You perjured yourself in a bankruptcy proceeding
- You received a previous Chapter 7 discharge within the last 8 years
Frequently asked questions
Q. Can taxes be eliminated in bankruptcy?
Some old income taxes can be forgiven. Generally, income taxes that are more than three years old when the tax was due and more than 240 days old when the tax was assessed are eligible. However, tax fraud or tax evasion cannot be discharged.
Q. Does bankruptcy wipe out all my credit card debt?
Most credit card debt is discharged, but large cash advances ($1,100 or more, within 70 days) or luxury purchases ($800 or more, within 90 days) made just before bankruptcy may be denied. If you're planning to file bankruptcy, you should avoid making large credit card purchases just beforehand.
Bankruptcy discharge, know it and be prepared. Contact the Law Offices of Jin D. Cho for a debt analysis and bankruptcy consultation.
Phone: (718) 353-2699 | Email: jd@choattorneys.com