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Non-Dischargeable Debts in Bankruptcy
The bankruptcy law has a number of rules
concerning the discharge of debt. Availability of discharge depends on the
Chapter under which the bankruptcy proceedings are conducted and whether the
debtor is a person or organization. One rule, which applies in all Chapters,
however, is that a debtor guilty of misconduct during the course of the
bankruptcy proceeding will be denied discharge.
For policy reasons, Congress made certain types
of debt nondischargeable when it crafted the bankruptcy laws. Depending on the
chapter under which bankruptcy is filed, these include:
certain taxes and fines;
debts arising out of fraudulent acts on
the part of the debtor;
debts not mentioned by the debtor;
alimony, maintenance and support payments;
debts arising from a willful and malicious
injury;
educational loans;
debts owed as a result of driving while
intoxicated;
debts that were not discharged in prior
bankruptcy proceedings; and
certain debts arising from obligations to
banks and similar institutions.
In order to encourage debtors to make efforts
to repay some debt, Congress has allowed a greater number of debts to be
discharged under those chapters that require the debtor to set up a payment
plan to repay a certain amount of the debt.
Chapter 7 is the most common form of
bankruptcy. Individuals and businesses may file for Chapter 7 bankruptcy, but
the discharge of debt under Chapter 7 applies only to individuals, not
businesses. All of the nondischargeable debts listed above apply in Chapter 7.
The rest of the debts are discharged except, generally speaking, those to
which the debtor obligated himself after he was declared bankrupt by the
bankruptcy court.
Chapter 13 is available only to individuals.
Under chapter 13, the debtor creates a three to five year plan for repayment
of all or a portion of his or her debt. As an incentive to successful
completion of the plan, the rules allow discharge of a greater number of
debts. Nondischargeable debts in Chapter 13 are alimony, maintenance and
support obligations, educational loans, driving while intoxicated obligations,
payments imposed on the debtor as a result of a criminal conviction, and
certain long term debts. When a debtor can not successfully complete a chapter
13 plan, he or she may choose to convert the case to a Chapter 7 bankruptcy or
to request a hardship discharge. A hardship discharge will only be granted by
the court under certain limited circumstances and will discharge no more debts
than Chapter 7 bankruptcy would.
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