A Guide to Nondischargeable Debt

Life is expensive. From mortgage payments to food and utility bills, there’s a lot of things you need money for to keep you and your family afloat while living comfortably. However, sometimes these expenses can get the best of you and you can begin to sink into debt. Whether an unexpected emergency wiped away all of your funds or you have a history of poor spending, being in debt can add a ton of stress to your life.

If you’re in insurmountable debt and don’t see yourself climbing out any time soon, it may be time to file for a Chapter 7 bankruptcy under Title 11 of the United States Code. The point of a Chapter 7 bankruptcy is to provide a fresh start to Americans who cannot make regular payments towards their debts by liquidating any assets and converting them to cash to pay back creditors.

In a bankruptcy case, the court can also discharge certain debts, meaning your debts are wiped out and you are no longer responsible for them, no matter how much the debt is. However, not all debts can be discharged. There are numerous nondischargeable debts you are responsible for paying back even after a Chapter 7 bankruptcy case.

If you’re filing for bankruptcy, it’s important you know the nondischargeable debts in Chapter 7 of the U.S. Code. Below, we’ll go over what nondischargeable debts are, how they’re determined, and what debts are nondischargeable.

Continue reading below for a full understanding of nondischargeable debt, or use the links below to navigate to a specific section that may hold the answer you’re looking for.

What is Nondischargeable Debt?

Nondischargeable debt is debt that is not exempt from a bankruptcy case. This means these debts must be paid even if you’ve gone through a bankruptcy hearing. There are a few reasons why certain debts cannot be discharged, and most have to do with public policy. One reason may be because the debt was incurred after fraudulent and reckless activity, such as theft or drunk driving. Other nondischargeable debts include debts such as alimony and child support, student loans, and income taxes.

This also means that if you’re a creditor in a bankruptcy case, such as the president of a homeowner’s association (HOA), you don’t have to worry about not receiving your money if a resident files for bankruptcy. There are 19 nondischargeable debts outlined in the U.S. Code, such as HOA fees, which are discussed in a later section.

In general, you can discharge tax debts by filing for bankruptcy and get certain debts, such as medical bills and auto loans, relinquished. But, a creditor has the power to object a discharge. If a creditor objects your discharge, they will have to prove that you should be held responsible, which will make paying back nondischargeable debts mandatory. Creditors can prove you’re responsible in a variety of ways, such as:

  • Debts from fraud, larceny, or embezzlement
  • Debts from harmful and intentional acts
  • Debts from a divorce decree or for past-due child support and alimony
  • Debts for luxurious items

How are Nondischargeable Debts Determined?

Nondischargeable debts in Chapter 7 bankruptcy hearings are determined in a variety of ways. Some debts might not be dischargeable if you were found destroying records and books, transferring or hiding property, or not completing a required course on personal finance management. Other debts that might not be dischargeable if a creditor objects the discharge, such as a debtor getting a cash advance worth more than $750 within 70 days of filing for bankruptcy.

Whether you’re filing bankruptcy on taxes or for overextended credit, it’s important you get the necessary help to help with your bankruptcy case. This could mean working with tax resolution services or hiring the right bankruptcy lawyer for your case who can help you discharge as many tax debts as possible. Community Tax offers a variety of tax resolution services that can help you get out of debt. From our Fresh Start Program to creating an IRS Payment Plan, our tax professionals, bookkeepers, and accountants are here by your side to help you turn over a new leaf and start fresh.

Nondischargeable Debts in Chapter 7 Bankruptcy

The U.S. Bankruptcy Code is a series of laws enacted by Congress under Title 11 of the United States Code. Title 11 is composed of nine chapters, with each chapter defining things such as general provisions, guidelines creditors and debtors must abide by, and the different types of bankruptcy you can file.

In the case of nondischargeable debts, we’ll cover Chapters 5 and 7 of the U.S. Bankruptcy Code. Chapter 5 discusses the guidelines of debtors, while Chapter 7 is a type of bankruptcy an individual or business can file. However, there are several other ways an individual or organization can file for bankruptcy. These include:

  • Chapter 7: Individuals and businesses
  • Chapter 9: Municipalities, such as towns, cities, taxing districts, and school districts
  • Chapter 11: Businesses who need to reorganize their structure
  • Chapter 12: Family farmers and fishermen
  • Chapter 13: Individuals looking to reorganize their bankruptcy
  • Chapter 15: Parties that involve more than one country

If you’re filing for a Chapter 7 bankruptcy, there are 19 nondischargeable debts outlined under Chapter 5, Section 523 that apply to debtors. These 19 nondischargeable debts also apply to chapters 11 and 12 bankruptcies, while a more limited list applies to Chapter 13 bankruptcy proceedings. The nondischargeable debts that apply to Chapter 7 bankruptcies include:

  1. Tax or customs duty, in cases where a tax return was not filed or was fraudulent
  2. Services, money, property, or an extension, refinancing, or renewal of credit that was obtained by fraud or false pretenses, as well as purchases of luxury goods using credit and taking out cash advances
  3. Section 521 under Title 11, Chapter 5 of the U.S. Code requires debtors to list their creditors, as well as the amount they owe. Unless a creditor had notice and didn’t respond, if a debtor fails to list the creditor on their bankruptcy petition, those debts are nondischargeable
  4. For fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny
  5. Domestic support obligations, such as alimony payments and child support
  6. If the debtor committed any willful or malicious injury to another person or their property
  7. Debts from fines and penalties owed to a governmental unit
  8. Debts owed for educational benefit, such as student loans
  9. Debts owed for the death or injury of another person while operating a motor vehicle, vessel, or aircraft while intoxicated from alcohol, drugs, or another substance
  10. Debts that were, or could have, been listed or scheduled in a prior bankruptcy case that the debtor waived discharge or was denied a discharge
  11. If you’re a fiduciary (like a financial advisor) who committed fraud or defalcation within a federal depository, such as a bank
  12. Malicious or reckless failure to fulfill a commitment to a bank, credit union, loan associations, etc., such as destroying financial records or transferring property to hide it from creditors
  13. Payments for criminal restitution outlined under Title 18 of the U.S. Code
  14. Taxes owed to governmental units other than the United States
  15. Debts to a spouse, former spouse, or child that resulted from a divorce or separation
  16. Fees that become due and payable after a bankruptcy hearing for homeowner’s association fees (HOA), condominiums, and a share in a cooperative corporation
  17. Fees imposed on prisoners by any court for the filing of a case, motion, complaint, or appeal, and all related expenses to the filing
  18. Debts for tax-advantaged retirement plans, such as pensions, profit-sharing, and stock bonuses
  19. Debts that result from the violation of any of the Federal securities laws defined by the Securities Exchange Act of 1934 and common law fraud and deceit with the purchase or sale of any security

For the March 2019 year-ending period, there were 750,489 non-business bankruptcy cases alone. While the number of bankruptcy suits declined from the previous year, many Americans are still facing financial hardships. While a bankruptcy case can help insolvent debtors start anew, nondischargeable debts can continue to haunt them down the line.

Dischargeable Debts in Chapter 7 Bankruptcy

Now that you know what nondischargeable debt is, you may be wondering what debts are dischargeable. If you’re filing for a Chapter 7 bankruptcy, you can rest assured knowing that 99 percent of an individual’s debts are discharged. These debts include any type of debt that is not one of the 19 listed above. Some examples of dischargeable debts include:

  • Credit card debt
  • Payments for motor vehicles
  • Housing payments
  • Personal loan payments
  • Medical bills

Key Takeaways on Nondischargeable Debt

Filing for bankruptcy shouldn’t be looked down upon. Life can throw many curveballs, from expensive medical bills to unexpected unemployment. Unanticipated events like these can cause anyone to fold and end up falling into debt. And when this happens, it may be time to file for bankruptcy. The U.S. Bankruptcy Code was devised to help honest consumers get out of debt and have a fresh start. However, it’s important to know that all debts aren’t relinquished, and you will still be required to pay back nondischargeable debts.

There are plenty of ways you, or someone you know, can get help to create a more stable financial future. From seeking tax debt help from one of our tax experts to hiring a lawyer to provide assistance during your bankruptcy hearing, there are plenty of ways to get afloat when all else has failed.