Nondischargeable debt is debt that cannot be discharged through a bankruptcy filing. Student loans, most federal, state, and local taxes, money borrowed on a credit card to pay those taxes, and child support and alimony are examples of such debts.
What happens to nondischargeable debt?
Non-dischargeable debts are those that cannot be discharged in bankruptcy under the United States Bankruptcy Code. If you have non-dischargeable debts, you will not be able to discharge them in a Chapter 7 bankruptcy. Other debts can be discharged in a Chapter 7 case, allowing you to pay non-dischargeable debts.
What is considered a dischargeable debt?
Debt that can be discharged after filing for bankruptcy is known as dischargeable debt. The debtor is no longer personally liable for the debts, and hence has no legal responsibility to repay them. When a debt is discharged, creditors are usually unable to pursue collection action against the debtor.
Credit card debt and medical bills are two frequent dischargeable debts. Domestic support and tax liabilities, for example, are often non-dischargeable due to public policy considerations. Exemptions to dischargeable and non-dischargeable debts are listed in 11 U.S.C.A. 523. The types of debts that are dischargeable and the requirements for discharge differ depending on the form of bankruptcy the debtor declares under federal bankruptcy law.
A discharge is only accessible to individuals in Chapter 7 proceedings, not companies or partnerships. As a result, in more than 99 percent of chapter 7 cases, people are able to get their debts discharged. There are, however, grounds for denial. An objection to a debtor’s discharge can be filed in bankruptcy court by a creditor or trustee, resulting in an adversary procedure. A court may also deny a debtor’s discharge for reasons outlined in 11 U.S.C.A. 727(a), such as presenting a fraudulent claim or failing to adequately explain any loss of assets to satisfy the debtor’s obligations. Secured liens are frequently non-dischargeable, even when a discharge has been obtained. If a debtor has outstanding mortgage payments, for example, his or her home may be repossessed. If a debtor wants to maintain his or her property, he or she might sign a reaffirmation agreement, committing to repay the obligation even if it has been dismissed.
When a debtor confirms a reorganization and repayment plan in a Chapter 11 case, he or she is usually eligible for discharge. However, unless the debtor is a single individual, the debt is not dischargeable if the plan is a liquidation plan rather than a reorganization plan (not a corporation or partnership). In most circumstances, if the debtor is a person, the debt will not be discharged until all plan installments have been fulfilled.
Debt can be dismissed in Chapter 12 cases if the debtor completes his or her Chapter 12 plan and certifies that all domestic support obligations due prior to the certification have been paid. Creditors who have been paid in part or in full are no longer able to pursue legal action against the debtor. In some cases, a court may give a discharge to a debtor even though he or she is unable to fulfill all plan payments under 11 U.S.C.A. 1228(b).
In Chapter 13 cases, debt can be discharged after a debtor completes his or her chapter 13 plan and (1) certifies that all domestic support obligations due before certification have been paid, (2) has not received a discharge in a prior case within specified time periods, and (3) has completed an approved financial management course if one is available. Chapter 13 bankruptcy covers more debts than other types of bankruptcy; 11 U.S.C.A. 1328(a) outlines the categories of debts that can be discharged. Under 11 U.S.C.A. 1328(b), courts may give a discharge to a debtor even if he or she has not made all plan payments in specified instances, similar to Chapter 12 cases.
What types of debts are not dischargeable?
If a creditor objects during the lawsuit, the following debts will not be dismissed. Creditors must show that the debt falls into one of the following categories:
- Debts incurred as a result of a divorce settlement agreement or a court order (if you can pay and the detriment to the recipient would be greater than the benefit to you)
Does the creditor assert that the debt is nondischargeable?
Amendment to the discharge exception for fraudulent financial statements. The preamble to section 523(a) makes explicit reference to a refinancing of credit in order to establish that a “renewal of credit” includes a “refinancing of credit” (2). A credit renewal or refinancing acquired through the use of a false financial statement in violation of section 523(a)(2) is nondischargeable. Each of the provisions of section 523(a)(2), on the other hand, must be proven. A creditor must prove that the debt was collected by false pretenses, a false representation, or actual fraud, other than a statement about the debtor’s or an insider’s financial status, under section 523(a)(2)(A). Subparagraph (A) is designed to codify recent case law, such as Neal v. Clark, 95 U.S. 704 (1887), which defines “fraud” as genuine or positive fraud rather than fraud implied by law. Subparagraph (A) and subparagraph (B) are mutually exclusive (B). The so-called fraudulent financial statement is discussed in subparagraph (B). To be nondischargeable, the creditor must show that the debt was obtained through the use of a written statement I that is materially false; (ii) concerning the debtor’s or an insider’s financial condition; (iii) on which the creditor to whom the debtor is liable for obtaining money, property, services, or credit reasonably relied; and (iv) that the debtor caused to be made or published with the intent to deceive. The House report explains Section 523(a)(2)(B). A discharge is only barred under section 523(a)(2)(B)(i) for the part of a loan for which a fraudulent financial statement is significantly false.
What debts are not dischargeable in Chapter 13?
Certain long-term obligations (such as a home mortgage), alimony or child support debts, certain taxes, debts for most government-funded or guaranteed educational loans or benefit overpayments, and debts arising from death or personal injury caused by driving while intoxicated are not discharged in chapter 13.
Can a creditor collect on a discharged debt?
Is it possible for a debt collector to pursue a debt that was discharged in bankruptcy? Debt collectors are unable to pursue debts that have been dismissed in bankruptcy. Additionally, debt collectors are prohibited from continuing collection efforts while your bankruptcy case is pending in court.
Does Chapter 13 wipe out all debt?
You can use Chapter 13 bankruptcy to make up for missing mortgage or vehicle loan payments and reorganize your obligations with a repayment plan. When you finish your plan, you will be granted a Chapter 13 discharge, which will wipe out the majority of your remaining debts.
Can creditors come after you after Chapter 13?
Stopping collection calls with a written request is a smart first step. However, it will not alleviate you of your financial load. A bankruptcy petition may be the fresh start you need if you’re drowning in debt. Aside from discharging and reorganizing your debts, bankruptcy offers the added benefit of putting a stop to collection efforts through a court order known as an automatic stay.
What is an Automatic Stay
An automatic stay is triggered when you file for bankruptcy. After you file for bankruptcy, an automatic stay prevents creditors from contacting you to collect debts. It guards you against obnoxious phone calls, emails, and letters.
Continuing collection action after you’ve filed bankruptcy is illegal unless the creditor has judicial approval.
What if Collection Calls Continue after You File Bankruptcy?
When you file for bankruptcy, you should see a reduction in collection efforts almost immediately. However, some creditors may continue to call while their system catches up since they are having trouble integrating bankruptcy notices.
If you get a call soon after filing, explain that you declared bankruptcy and that an automatic stay is in place. Once alerted, the bill should recognise the change and stop contacting you in the future, because debt collectors can be sanctioned if they don’t stop collecting.
Some creditors, on the other hand, prefer to ignore the automatic stays and just defy the law. They may continue to annoy you in the hopes that you would not respond. These shady practices should not be condoned. Contact an attorney right away if you’re being harassed by a debt collector.
Enforcing Automatic Stays
If you’re still getting calls from creditors after filing for bankruptcy, it’s time to take action. You can’t count on these debtors to cease. They may be unaware of your bankruptcy or unconcerned about it.
You should contact a Cleveland bankruptcy lawyer right now for assistance. Your lawyer can check in to see if their system has been updated, or take legal action against creditors who are violating the law by ignoring your automatic stay.
If the collector persists, your attorney will most likely inform them of the possible fines that the Bankruptcy Court can impose if they do not stop. If you continue to be harassed by collectors after that warning, your counsel might seek the Bankruptcy Court to impose sanctions. Fines, attorney’s costs, and restitution are among the sanctions.
Will Chapter 13 leave me broke?
You may be considering bankruptcy if you’re in debt owing to a lost employment, medical sickness, or divorce.
Chapter 7 and Chapter 13 are the two most popular types of bankruptcy in the United States.
You can swiftly wipe out your obligations through Chapter 7 bankruptcy, but you’ll have to give up pricey possessions that aren’t exempt.
You can keep valuable property like a house or a fancy car if you file for Chapter 13 bankruptcy and make monthly payments during a three-to-five-year repayment plan.
However, unlike Chapter 7, which resulted in debt discharge in 96% of cases, only roughly 40% of Chapter 13 cases result in debt discharge. Filing for Chapter 13 is usually a terrible option for this and other reasons.
Chapter 13 Has a Failure Rate of 67%
Why do around two-thirds of Chapter 13 cases fail? To get your obligations discharged, you must complete a 3-5 year repayment schedule. And the majority of the plans are for a period of five years. Some debts will be waived only at the conclusion of the programme.
During that five-year plan, a variety of unforeseen expenses may arise, including as medical fees resulting from an injury, the birth of children, and burial expenses for family members. Furthermore, losing your work, receiving a wage cut, or having your hours decreased can all result in a reduction in your income.
All of these life events together make making monthly payments over a 5-year period extremely difficult.
Chapter 13 Is More Expensive
Without the assistance of a lawyer, Chapter 13 should never be filed. Chapter 13 cases filed with an attorney already have a 33 percent success rate; without one, the success rate decreases to 2.3 percent. Many bankruptcy trustees will tell you that they have never encountered a successful Chapter 13 case in which the debtor was not represented.
Unfortunately, Chapter 13 legal fees are significantly more expensive than Chapter 7 legal fees because to the increased length and complexity of Chapter 13 cases for attorneys. A Chapter 13 bankruptcy costs at least $3,200, compared to $1,500 for a Chapter 7 bankruptcy. Although this price can normally be paid over time, it is still more costly.
Chapter 13 Is Likely to Worsen Your Finances
As previously indicated, almost two-thirds of Chapter 13 cases in the United States are dismissed.
When your Chapter 13 bankruptcy case is discharged, you are usually in a far worse financial situation. That’s because as you’ve battled to make payments, the interest on your outstanding obligations has continued to rise. And once you’ve emerged from bankruptcy, you’ll be in even more debt than before.
You’ve already paid the costs of bankruptcy legal fees and filing fees, as well as a seven-year black mark on your credit report without getting the major advantage of bankruptcy, a fresh start.
Black Debtors are Far Less Likely to Receive Debt Relief
The statistics indicating that is not applied uniformly is one of the most concerning trends connected to Chapter 13.
Black borrowers are more than twice as likely to choose Chapter 13 over Chapter 7 than white debtors with similar financial circumstances across the country. And once black debtors chose Chapter 13, their chances of having their cases dismissed with no debt relief increased by about 50%.
That isn’t to say that Chapter 13 is racially biased; it isn’t. However, it does imply that the law may be implemented inconsistently in ways that should be considered before filing.
Myth: You Get to Keep Your Stuff
The desire to keep one’s possessions, such as a home or a car, is one of the most common reasons for filing for Chapter 13. “Generally speaking, Phase 13 is a ‘keep your stuff’ chapter,” explains Bert Benham, a Memphis bankruptcy lawyer.
The reality is that, because nearly two-thirds of Chapter 13 cases fail, Chapter 13 usually does not help you keep your home. Desperate Chapter 13 filers often spend years and many bankruptcy proceedings attempting to save their car from being repossessed.
Take, for example, the account of a Memphis resident who filed for Chapter 13 four times in the last seven years to save her car:
She lost her job a year and a half after filing the first time, and her case was dropped when she fell behind. She promptly re-filed to keep the automobile for job interviews, paying the bills with unemployment benefits until she couldn’t. After that, she filed a third time.
After her third dismissal in 2014, she found a new part-time job paying $11 an hour and reapplied. She still owes two years’ worth of payments and will have spent the majority of her 30s battling to keep her car. “I would have just let my car go if I had known,” she stated.
How much are you ready to pay for the little chance of saving your property in a Chapter 13 case, given how few Chapter 13 cases result in discharge?
Myth: You Can Easily Pay “No Money Down
Another popular reason for filing Chapter 13 is that it is frequently possible to do so with “no money down.”
Unlike Chapter 7, where legal fees must always be paid up front, attorney fees under Chapter 13 can be spread out during the plan’s 5-year existence. As a result, several law firms now allow debtors who are unable to afford Chapter 7 to petition for Chapter 13 with “no money down.”
Though it may seem like a decent idea if you’re short on funds, it’s rarely the case. According to a recent national research, “no money down” filers pay $2,000 more and have their cases dismissed at an 18-fold higher rate than those who file Chapter 7.
That implies they won’t be able to get rid of the debt that drove them to enter bankruptcy in the first place.
Nonetheless, attorneys will continue to recommend this alternative because there is a chance that you will triumph. Even if you lose, the attorney can still make money from the fees you paid before the case was dismissed.
Myth: Chapter 13 Usually Will Improve Your Budgeting Skills
Another proponent of Chapter 13 is that it teaches you how to live on a budget.
“Wham boom, it’s over, and they’re back to the same old stuff, the bad habits that put them into problems in the first place,” says Arthur Ray, a Memphis bankruptcy attorney. Ray, on the other hand, claims that “For that 60-month plan, a Chapter 13 shows people how to live without buying goods.”
That is especially true in the 33% of cases where debtors really follow through on their plans. However, as we all know, most creditors do not stick to their 3-5 year repayment schedule.
If the case fails, there will be no long-term debt relief and, most likely, no long-term budgetary improvement.
Myth: Chapter 13 is Useful for Getting Your Driver’s License Back
In recent years, one of the most common uses of Chapter 13 has been to regain your driver’s license. When a driver owes a considerable quantity of parking or traffic citations, his or her license is typically revoked by city and state governments.
Unpaid tickets are not dischargeable under Chapter 7, but they are dischargeable under Chapter 13. As revealed in this ProPublica film, a large number of debtors apply Chapter 13 in order to regain their driver’s license.
Because parking and traffic tickets are the leading cause of bankruptcy in Chicago, the city’s bankruptcy court has the highest number of Chapter 13 filings in the country. Unfortunately, according to ProPublica’s analysis, only about a quarter of Chapter 13 cases involving ticket debt were successful.
The majority of these debtors pay hundreds of dollars in legal expenses before their cases are dismissed, with no money going toward paying off their traffic penalties.
Debtors risk losing their cases and licenses after their cases are dismissed, thus leading to a spiral of additional debt and bankruptcy.
What are dischargeable debts for Chapter 7?
Most debts are discharged in Chapter 7 bankruptcy. Credit card debt, medical expenses, personal loans, and other unsecured debt will be with you for the rest of your life. utilities that have not been paid
How long does a discharged debt stay on credit report?
You can dismiss part or all of your debts after filing for Chapter 7 bankruptcy, which stays on your credit records for up to ten years. A lender cannot collect a debt that has been discharged, and you are no longer accountable for repaying it.
If you filed for bankruptcy before a debt was listed as late, it will be removed from your credit report seven years from the date of delinquency. If a debt was not reported delinquent before you filed for bankruptcy, however, it will be eliminated seven years after you filed.
