What will still be owed after a bankruptcy?

Although more than a million Americans file bankruptcy annually, there is considerable confusion on what it is and what it means to the consumer and creditors alike.  Not a week goes by when I don’t get a few questions from our clients about something bankruptcy-related.  One of our staff members recently took questions about what types of debt is NOT discharged in bankruptcy.  Let’s consider this topic!

First, what does “discharge” mean?  When a person files for bankruptcy protection, creditors are prohibited (or ‘stayed’) from taking most actions to collect their debt or repossess collateral.  Once the bankruptcy court has approved the plan and everything runs it’s course as prescribed (about 120 days for a chapter 7 case, 3-6 years for a chapter 13 case), the judge will grant a “discharge” of the debts.  This means the debtor is not obligated to pay certain debts, and it’s “as if the debt were never incurred”.  Creditors cannot try to collect debts that have been discharged in a bankruptcy filing.

Once discharge is granted, the debtor and creditors are notified by the court.  The page 2 of this notice lists several debts which are NOT discharged in a bankruptcy proceeding.

a) debts for most taxes  b) debts for most domestic support obligations c)  debts for most student loans  d) debts for most fines, penalties, criminal restitution obligations e)  debts for personal injury or death caused by the debtor’s operation of a motor vehicle  f)  some debts which were not properly listed by the debtor  g)  debts the court specifically has decided are not discharged  h)  debts which the debtor has given up the discharge protections by signing reaffirmations agreements with the court

A consumer can file for bankruptcy and still have quite a number of debts they will be obligated to pay.  This can be a very complex area to navigate, so be sure to seek good legal counsel when working with federal bankruptcy courts, lawyers, and debtors who file for bankruptcy protection.

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