The biggest advantage of filing a Chapter 7 bankruptcy is the possibility of having some or all of your debts discharged. When a debt is discharged, it is cancelled by the Court and you do not have to repay it. However, not all debts are dischargeable.
In general, the following kinds of debt cannot be discharged:
- Child Support Obligations: Under federal law, both back child support and current child support obligations cannot be discharged in bankruptcy. Additionally, filing for Chapter 7 bankruptcy does not stop your ex-spouse from taking you to Family Court to recover child support owed. Under federal law, the bankruptcy trustee must pay off child support debts prior to paying off any of your other creditors. If you find that you are unable to pay your child support even after your other debts are cancelled in bankruptcy, you must ask Family Court to reduce your child support.
- Spousal Support Obligations: Like child support, spousal support that you have been ordered by a Court to pay cannot be discharged in bankruptcy.
- Tax Debts: Most tax debt cannot be discharged in bankruptcy. However, if you meet the following requirements, you may qualify to have some of all of your tax debts discharged:
- The due date for filing the tax return in question was at least three years before you filed for bankruptcy;
- The tax return in questions must have been filed at least two years before the date you filed for bankruptcy;
- The IRS statement that you owe a tax debt must be at least 240 days old. The tax return in question must not have been fraudulent.; and
- You must not have been guilty of tax evasion.
- Debts Owed to the Government Other than Tax Debts: For example, debts to the Social Security Administration, Medicare, or the U .S. Department of Justice cannot be discharged in bankruptcy.
- Criminal Restitution: If you have been committed of a state or federal crime, you may have been ordered to pay the victim for your crime. The debt may take the form of a fine, replacement of property, or medical bills. Such debts cannot be discharged in bankruptcy.
- Debts Arising Out of Accidents Involving Alcohol: If you have been convicted of a crime or successfully sued as the result of an accident that resulted from your intoxication, you cannot have debts related to the accident discharged.
- Student Loans: Student loans are almost never dischargeable in bankruptcy. On rare occasions, your student loan can be discharged if the Court finds that repaying your student loans creates an undue hardship on you or your family. However, such discharges are extremely rare.