How Bankruptcy Can Eliminate Debt
The purpose of filing bankruptcy is to obtain a bankruptcy court order discharging the debtor of liability on debts. The bankruptcy court usually issues a discharge order about two months after the debtor first meets with the bankruptcy trustee.
In both consumer bankruptcy and business bankruptcy cases, the dischargeability of debts is one of the major issues that must be reviewed. Debtors should know, before filing bankruptcy, what debts are dischargeable, which are not, and which might possibly be excepted from discharge. Debt dischargeability issues should never be a surprise. I’m attorney Peter Scribner, Esq., and I can help you learn exactly what debts you can discharge.
Will Your Debt Be Discharged?
Section 523 of the Bankruptcy Code lists debts that are excepted from discharge. Unless a debt is excepted, it is discharged.
Some debts are never discharged in bankruptcy; the creditor is not obligated to take any action in bankruptcy to make the debt survive the discharge. The most common are:
- Recent income taxes: It’s a complicated area, but taxes for which the April 15 tax return deadline was less than three years ago are definitely not dischargeable. Loans used to pay a nondischargeable tax are also nondischargeable.
- Trust taxes: Usually, this occurs in a business situation, where a debtor collects taxes from another party (such as sales tax or employee withholding) and fails to turn it over to the government. Trust taxes are never discharged, no matter how old they are.
- Alimony, maintenance or child support: These are never discharged; neither are property settlement claims arising out of a separation agreement or divorce decree.
- Penalties or fines owed to the government: These are non-dischargeable, but penalties that reimburse the government for an actual financial loss are discharged. As a personal example, I once slid off a highway in a snowstorm and knocked over a light post. I got a traffic ticket for the accident and a bill from the county for repairing the light. If I had filed bankruptcy, the traffic ticket fine would not have been discharged, but the repair bill would have been.
- Student loans: Both government-backed and private student loans, except in cases of extreme hardship, are not discharged.
- Debts that existed where discharge was denied or revoked in a previous bankruptcy case: These are never discharged in future bankruptcy cases.
Other debts are excepted from bankruptcy ONLY if the creditor files a lawsuit with the bankruptcy court asking that the debt be excepted from discharge. The creditor must file this lawsuit within 60 days of the debtor’s first meeting with the trustee (or the creditor must file a motion asking the deadline to be extended.)
These lawsuits, called adversary proceedings, cost creditors a lot of money, so they are not filed unless the amount of debt is significant.
Why I Am Your Ideal Bankruptcy Attorney
I am a lawyer with extensive experience and knowledge of debt discharge issues in western New York bankruptcy courts.
I have analyzed every dischargeability lawsuit (adversary proceeding) filed by creditors in Rochester and Buffalo since 2007 and have identified those creditors most likely to ask for a debt to be excepted from discharge.