Dischargeable and Non-Dischargeable Debts

Filing for bankruptcy can be a lifeline for individuals overwhelmed by debt, offering a fresh start and the opportunity to rebuild their financial lives. However, not all debts are treated equally in bankruptcy. It is crucial to understand which debts can be eliminated (discharged) and which cannot. For those considering bankruptcy, this blog post will explore the types of debts and provide a basic understanding of dischargeable and non-dischargeable debts in California. 

Dischargeable Debts in Bankruptcy
Dischargeable debts are those which can be eliminated through the bankruptcy process, providing the debtor relief from their repayment obligation. The most common dischargeable debts in bankruptcy include:

Credit Card Debt
Credit card debt is one of the most common types of dischargeable debt available in both Chapter 7 and Chapter 13 bankruptcy filings. In a Chapter 7, once discharged, the debtor is no longer legally required to pay the remaining balance. Under a Chapter 13 filing, the debtor agrees to a repayment plan to repay some or all of the remaining debt. 

Medical Bills
Medical bills can be overwhelming and are a leading cause of bankruptcy filings. Fortunately, these debts are generally dischargeable in bankruptcy, allowing individuals to eliminate substantial healthcare-related debt.

Personal Loans
Unsecured personal loans, including payday loans and installment loans, may be discharged in bankruptcy. This applies to loans from banks, credit unions, or online lenders who do not have collateral.

Utility Bills
Unpaid utility bills for services such as electricity, gas, water, and phone may be discharged in bankruptcy. This can provide significant relief for those struggling to keep up with their monthly living expenses.

Judgments from Lawsuits
Judgments from lawsuits related to unpaid debts, such as credit card debts or personal loans, may be discharged in bankruptcy. However, it is important to note this does not apply to judgments for fraud or willful injury to another person.

Older Tax Debts
Some older federal, state, and local tax debts may be dischargeable under specific conditions. Generally, these debts must be at least three years old, and the applicable tax returns must have been filed on time. Additionally, the tax debt must not be due to fraud or tax evasion.

Non-Dischargeable Debts in Bankruptcy
Non-dischargeable debts are those that cannot be eliminated through the bankruptcy process. Individuals remain responsible for repaying these debts even after bankruptcy. The most common non-dischargeable debts include:

Recent Tax Debts
Recent tax debts, including federal, state, and local taxes, are generally non-dischargeable. Taxes less than three years old or those resulting from fraudulent activity or tax evasion cannot be discharged in bankruptcy.

Child Support and Alimony
Child support and alimony obligations are non-dischargeable in bankruptcy. These debts are considered essential to the well-being of dependents and must be paid in full, regardless of bankruptcy status.

Student Loans
Student loans are notoriously difficult to discharge in bankruptcy. In most cases, student loan debt remains unless the debtor can prove that repaying the loans would cause undue hardship, which is a challenging legal standard to meet.

Debts from Fraud or Malicious Conduct
Debts incurred through fraudulent activity, embezzlement, larceny, or malicious injury to another person or property are non-dischargeable. Creditors must prove the debt was incurred through legitimate means in order to discharge their obligations.

Fines and Penalties
Fines and penalties owed to government agencies, such as traffic tickets or criminal restitution, cannot be discharged in bankruptcy. These obligations must be paid in full, even after bankruptcy.

Luxury Goods and Services
Debts incurred for luxury goods or services within 90 days of filing for bankruptcy are often non-dischargeable. This is to prevent abuse of the bankruptcy system by individuals who incur significant debts immediately before filing.

Understanding the Process
When filing for bankruptcy, it is essential to work with an experienced bankruptcy attorney who will help you understand which debts are dischargeable wand which are non-dischargeable. The attorney will guide clients through the process, ensuring you meet all legal requirements and can maximize the benefits of the filing for bankruptcy.

Conclusion
Bankruptcy can offer significant relief from overwhelming debt, but it is important to have a clear understanding of which debts can be eliminated and which cannot. In California, credit card debt, medical bills, personal loans, and certain older tax debts can typically be discharged, providing a fresh financial start. However, recent tax debts, child support, alimony, student loans, and debts from fraudulent or malicious conduct remain non-dischargeable.

By understanding these distinctions and working with a knowledgeable bankruptcy attorney, consumers can make informed decisions about their financial future and take the necessary steps toward recovery and stability. Bankruptcy is not the end but rather a new beginning, offering the opportunity to rebuild financial lives with a clearer, more manageable path forward.

For additional information or questions concerning bankruptcy, please call the experienced bankruptcy attorneys at 619-595-1655 or via the Web at RJS LAW for a free, no-cost consultation.

Written by Marco Torres, Esq.