Most people think that in a Chapter 7 bankruptcy all debts are discharged and the debtor gets to start over with a clean slate. While that’s true for most debts, there are some types of debts that aren’t discharged in a bankruptcy.
In addition, there are certain circumstances in which a debtor or a bankruptcy court may decide that a debt shouldn’t be discharged. Below, we’ve outlined several reasons why all debts may not be discharged in a Chapter 7 bankruptcy.
Can’t Be Discharged
After a debtor files for a Chapter 7 bankruptcy, his creditors may no longer take any legal action to collect on the debtor’s debts. However, there are certain types of debts that aren’t discharged in a bankruptcy. These debts include certain taxes, alimony and child support debts, student loan debts, certain criminal restitution and personal injury debts. So if you have student loans or you’re behind on your child support payments, you’re probably out of luck.
In some instances, a debtor may actually choose not to have a debt discharged. In a Chapter 7 bankruptcy, the debtor’s property is sold off to pay his debts. However, if the debtor wants to keep a piece of secured property, like a car, he can reaffirm the debt. A reaffirmation is an agreement between a debtor and creditor that the debtor will keep the secured property and pay off all or part of the debt, even though the debt could have been discharged in the bankruptcy.
In certain circumstances, the court may deny the debtor a discharge. If the court finds that the debtor failed to produce adequate financial records, committed a financial crime, fraudulently concealed or transferred property to avoid liquidation, or failed to adequately describe any loss of assets a discharge may be denied.
If you have any questions about debt discharge or bankruptcy law in general, you may want to consult with an attorney.