Most types of debt can be discharged in bankruptcy but some types of debt cannot, for example, tax debt, student loans, child support and debt incurred through fraud.
Tax Debt
Most tax debt incurred within three years of the Bankruptcy filing will not be discharged, nor will taxes owed for payroll taxes or other forms of trust fund taxes. Income taxes owed for years for which a tax return has been timely filed prior to three years before the filing will ordinarily be discharged, unless the return is deemed to be fraudulent.
Student Loans
Another type of debt that may not be dischargeable are loans for education. For individuals, this means most debt incurred for tuition, books, and other debts related to obtaining an education may not be dischargeable, unless the Debtor can prove to the Court that the payment of these debts would impose an undue hardship on the Debtor. Each state’s test for this may differ, but in general the Debtor is going to have to prove that they cannot pay the debt within any reasonable period of time. Courts may partially discharge a debt, so that the amount that has to be paid back is less than the full amount of the debt.
Family Support
In a Chapter 7 case, any debts related to a divorce proceeding or child support are excepted from discharge. That includes attorneys’ fees, property distribution debts and any other obligation that may be incurred in connection with the divorce. In a Chapter 13 case, generally only the support debts are excepted from discharge.
Debts Based on Fraud
If a creditor can prove to the Court that the debt owed to them was incurred due to the Debtor’s fraudulent activity, the creditor may be able to obtain an order from the Court that their debt survives the bankruptcy. The types of fraud may include a fraudulent financial statement, misrepresentations made to induce the creditor to grant the credit or loan, embezzlement, breach of a fiduciary duty and similar fraud-based actions. There is a time limit for filing such actions, so a creditor should be sure to contact an attorney immediately when finding out about the bankruptcy filing to make sure the deadline is not missed.
About the Finkel Law Group
Finkel Law Group, with offices in San Francisco and Oakland, has more than 40 years of experience assisting our clients navigate federal bankruptcy laws and state insolvency statutes. Our attorneys have the experience and expertise needed to help you and your management team successfully complete the liquidation or reorganization of your corporation, partnership or limited liability company.
When you need intelligent, insightful, conscientious and cost-effective legal counsel to assist you with the bankruptcy and reorganization issues confronting your company please contact us at (415) 252-9600, (510) 344-6601, or info@finkellawgroup.com to speak with one of our attorneys about your matter for a cost-free consultation.