What Is Nondischargeable Debt?
Nondischargeable debt is a type of debt that cannot be eliminated through a bankruptcy proceeding. Such debts include, but are not limited to, most student loans; most federal, state, and local taxes; money borrowed on a credit card to pay those taxes; and child support and alimony.
Key Takeaways
- Not all debt can be forgiven. This type of debt is known as nondischargeable.
- Nondischargeable debt includes marital support, child support, as well as most taxes and student loans.
- Filers may not use a credit card to purchase luxury goods right before filing. This is known as presumptive fraud and is also nondischargeable.
How Nondischargeable Debt Works
In addition to those already listed, some additional debts may be nondischargeable but only if the creditor objects to the discharge. These include debts arising from a marital settlement or divorce decree; debts incurred based on fraudulent acts; debts from willful and malicious acts to another person or another person's property; and debts from embezzlement, larceny, or a breach of fiduciary responsibility.
Borrowers with nondischargeable debts likely won't get as much out of filing for bankruptcy as those without any. Instead, borrowers struggling with their nondischargeable debt payments may be better served by working with one of the best debt relief companiesorcredit counseling agencies.
Ways NondischargeableDebts Are Determined
Many nondischargeable debts are deemed so because they may stem from acts of malfeasance on the debtor’s part. There may be errors of omission that also fall in this category. For example, unscheduled debts, which refer to any debts that were not listed in the bankruptcy petition, may be nondischargeable. Exceptions to this are possible, particularly if the creditors had knowledge of the bankruptcy filing and took no action.
Under Chapter 7 of the Bankruptcy Code, other types of nondischargeable debt include payments owed for personal injury caused by the debtor while intoxicated and operating a motor vehicle. Creditors can also dispute charges that the debtor wants to remove through bankruptcy. If the court approves such objections, those debts will become nondischargeable.
This includes credit card purchases owed to a single creditor for luxury goods exceeding certain dollar amounts that were procured within 90 days of the bankruptcy filing. However, if the debtor can prove they intended to repay the creditor or that the purchases were not luxury items, the court may allow the debt to be discharged. Cash advances above a certain dollar amount that were received within 70 days of a bankruptcy filing may also be nondischargeable debt.
There are additional circ*mstances under Chapter 7 wherein the court could declare debts as nondischargeable. This includes instances when the debtor destroys records of their finances, transfers property in an effort to hide it from creditors, if the debtor does not fulfill the completion of a course in personal finance management, or if the debtor cannot account for certain missing assets.
There may be instances where a debtor previously filed for bankruptcy and had debts discharged. This could be grounds under their latest bankruptcy for their debts to be declared nondischargeable, dependent on the type of bankruptcy that was filed and the time frame.
When Are Student Loans Dischargeable?
It's fairly difficult to have student loans discharged, but it may be accomplished by filing a separate suit known as an adversary proceeding. This suit will establish undue hardship or prove the fact that repaying the student loans would be unnecessarily damaging financially.
Can I Get Alimony or Child Support Payments Discharged?
No, marital settlements and child support payments are nondischargeable debts and must be paid.
What Is Presumptive Fraud?
Presumptive fraud is when a filer uses their credit card on nonessential or luxury goods within a short time before filing for bankruptcy. If creditors suspect that the filer has purchased luxury goods, knowing that their bill would be wiped clean in short order, they may decline to discharge those debts.
The Bottom Line
Although bankruptcy offers relief for most debts, not all are eligible. Nondischargeable debts will have to be repaid, although you may be able to negotiate a more reasonable repayment plan.
