The purpose of a Chapter 7 bankruptcy is to liquidate all of the debtor’s non-exempt property to pay creditors, and to legally discharge any remaining debt the debtor is unable to pay. The creditors get whatever the law allows them to take from the debtor (usually nothing), and the debtor gets a fresh financial start, without the heavy burden of debt.
While a Chapter 7 bankruptcy case will discharge many types of debts, there are 19 categories of debts that Congress has identified as not dischargeable (called "excepted from discharge"). A complete list of the 19 categories is below:
1. Most taxes. In some cases tax debt can be discharged. For instance, if an income tax debt is more than three years old, it may be dischargeable.
2. Debts incurred through false pretenses. This category includes debts for luxury goods or services within 90 days before the bankruptcy was filed, and cash advances within 70 days before filing.
3. Unlisted debts, if the failure to list the debt prevented notice to the creditor and an opportunity to file a claim or object to the discharge of the debt.
4. Debts for fraud or embezzlement.
5. Most domestic support obligations (including alimony, spousal maintenance or child support).
6. Debts for willful and malicious injury caused by the Debtor.
7. Government fines and penalties.
8. Student loans, unless the debtor can show that repayment of the student loan poses an undue hardship on the debtor and debtor’s dependents.
9. Debts resulting from DWI.
10. Debts which were or could have been listed in a previous bankruptcy and which were not discharged.
11. Debts owed to a spouse or ex-spouse arising from a divorce or separation. In some cases these debts are dischargeable.
12. Association dues for the Debtor’s interest in her home.
13. Debts incurred to pay non-dischargeable state or local taxes.
14. Federal election law fines and penalties.
15. Property settlements owed to a former spouse or to a child.
16. Condo or homeowner’s association fees.
17. Certain fees imposed on prisoners by a court.
18. Loans on pensions.
19. Certain debts arising from securities violations or wrongful acts of a fiduciary.
Some of these debts can be discharged under certain circumstances. Some of these debts may also be eligible for discharge or reduction in a Chapter 13. If any of these categories apply to one of your debts, speak with your attorney to determine how the bankruptcy discharge will impact the debt. Your Texas bankruptcy attorney will propose options for eliminating, reducing, or paying the debt.
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