Debts That Can’t Be Bankrupt . .
and How to Bankrupt Them Anyway here in Raleigh, NC!
The most common reason for a bankruptcy to be contested is that the Debtor has attempted to bankrupt one of seven debts that, under 11 U.S.C. 523, usually cannot be bankrupted. These magical “non-bankruptable” debts are listed below:
1. Child support and alimony
Child Support and Alimony are usually not bankruptable, but there can be rare exceptions. Past due child support amounts can be repaid in a Chapter 13, and you are able to reduce the amount of your child support by having the Family Court review the amount if you have a substantial reduction in income. Child support is determined by a chart in every state.
2. Mortgage in a Chapter 13 Bankruptcy
If you have property that is mortgaged, or that has a consensual lien on it (where you gave permission for the lien), you have some alternatives in a Chapter 13:
- If you are behind on your payments, you can catch up on them through the Ch. 13 plan.
- You can always surrender the property and pay for it as if it were just another unsecured debt.
- Completely strip a lien. Example: If the home is worth less than the first mortgage you may be able to strip away the second mortgage because it is essentially an unsecured debt. But there must not be one dollar in equity for the second mortgage or the whole second mortgage survives.
1. Federally guaranteed student loans
Federally Guaranteed Student Loans are generally not bankruptable unless you qualify for a hardship discharge. Before October 1998, Federally Guaranteed Student Loans over 7 years old were bankruptable! The law was changed in October 1998 and, except for hardship discharges, government guaranteed student loans are no longer bankruptable.
The Court considers three factors in determining whether you should get a hardship discharge for student loans
- Whether or not you tried to repay in good faith before you became unable to repay.
- Your present and future ability to repay.
- Whether or not it would create a hardship to your family if you had to repay.
The key is that repayment must be a real hardship-not just hard. The situation must hurt your ability to support yourself and your family. A perfect example of a real hardship is the nurse who has a child with a heart defect. The child is in need of constant care, preventing the nurse from working.
You may not be discriminated against in obtaining a future student loan on the grounds that you have filed a bankruptcy or failed to pay a student loan that was discharged in bankruptcy.
Debts due to theft or fraud
Fraudulent Debts can be discharged in a Chapter 13, but the judge may require you to pay a higher percentage or over a longer period of time than for normal debts. Certain creditors may claim that you tried to defraud them by taking a loan when you knew you were in financial trouble, that you made false statements in your credit application, or that you withheld information from them. But just being in financial trouble when you made the loan does not constitute fraud.
The fraud exception to discharge means that actual criminal theft or actual fraud cannot be discharged. If you incurred more than $500 debt to a single creditor for luxury goods or services within 90 days of filing bankruptcy or took case advances totaling more than $750 within 70 days prior to filing bankruptcy, there is a presumption that the debts were incurred through false pretenses.
The fact that the credit card company failed to run a credit check or made a stupid loan is not fraud. Only a proven, material, and intentional misrepresentation will be considered fraud. The burden of proof is on the lender, not you, and it is very rare that fraud can be proven.
Some of the Factors That Can Be Considered in a Hearing to Determine Fraud:
- The timing between making the charges and filing;
- A sudden change in conditions like unexpectedly losing a job after the loan;
- The amount of the charges made;
- The financial condition of the Debtor at the time the charges were made and whether or not the charges were above the credit limit of the account.
- The employment status of the Debtor;
- The Debtor’s prospects for employment;
- The financial sophistication of the Debtor;
- Whether or not there was a sudden change in the Debtor’s buying habits;
- Whether or not the purchases were made for luxuries or whether payments were made after charging on the account.
2. Criminal Acts:
Criminal Restitution and Intentional Injuries
- Intentional injuries: You intentionally assault or injure a person and then try to file a bankruptcy to get out of paying for the medical damages. Obviously, you can’t intentionally rob a bank or assault a person and then ask the Court to help you out of it. However, you can list the debt and, if the person fails to object, it will be bankrupted anyway.
- Criminal Acts or Criminal Restitution: Same idea as 5a: The judge ordered you to pay restitution after you stole from or intentionally hurt someone, and you try to bankrupt the criminal Court order. It doesn’t work. Also, if you were ordered to pay restitution in a criminal Court, a bankruptcy will not stop a criminal Court judge from ordering you to pay anyway.
3. No Insurance and Drunken Driving Accidents
Same idea as 5A and 5B: They closed this loophole in 1994. You can’t get drunk, drive, cause an accident, and then bankrupt the personal injury damages. Property damages may be bankruptable.
4. Re-instate a driver’s license
if you lost it due to unpaid accident damages. You can fax a copy of the filing to the driver’s license department and get your license the same day you file your bankruptcy.
5. Creditors (bills) or debts that you fail to list
in your petition – However you can normally reopen cases and add debts if necessary. Its costly to do so. We have opened a case that was 10 years old – which may be a record!
6. Debts non-dischargeable from a previous bankruptcy
due to fraud or improper acts
7. Debts from malicious acts
Where you INTENTIONALLY damaged property of others or that which is secured
8. If you have any of these non-dischargeable debts,
you should discuss the possibility of having them bankrupted anyway with your Attorney. There are several exceptions to almost every rule. If you list a non-dischargeable debt and the Creditor fails to object, it may be discharged anyway. If you don’t list it you may have to pay additional fees later to add it. When in doubt, list the debt.
This is one of the wonderful things about filing bankruptcy and listing ALL of your debts. Look at the bottom of your 341 hearing notice and you will see that, if a Creditor wishes to object to you filing a bankruptcy against his debt, he must file his objection by a certain date. If no objection is filed by that date, the debt is often bankrupted anyway. The Creditor must file an objection by the deadline or he is forever barred.
9. When a Creditor Objects
Other debts will be dischargeable, unless the Creditor objects and proves one of the following:
- Debt from fraud, including $500 or more to one Creditor for luxury items incurred within 90 days before filing, or
- (2) cash advances in excess of $750 within 70 days of filing.