Bankruptcy is a federal legal process for declaring an inability of an individual or organization to pay its creditors. The United States Constitution authorizes the bankruptcy laws and federal laws govern all bankruptcy cases.
One stated purpose of the federal bankruptcy laws is to give the debtor a financial "fresh start." At the end of most cases the bankruptcy judge will discharge certain debts and release the debtor from personal liability.
The bankruptcy laws are meant to give the honest debtor a fresh start, but not a head start. Therefore, Congress has identified certain debts that cannot be discharged in a bankruptcy. Many debts that would ordinarily qualify for discharge may be determined as non-dischargeable if a debtor has committed a crime or fraud in acquiring the debt. Other debts are deemed generally non-dischargeable based on public policy reasons (like taxes or child support).
Generally, the following are non-dischargeable debts:
1. child support or alimony obligations, and debts considered in the nature of support;
2. student loans, unless repayment would cause you undue hardship;
3. criminal fines or restitution;
4. debts listed in a prior bankruptcy where debtor was denied a discharge;
5. recent income taxes less than three years past due; and
6. auto accident claims involving intoxication.
Additionally, there are circumstances which may make a debt non-dischargeable:
1. debts incurred on the basis of fraud;
2. debts from willful or malicious injury to another or another’s property;
3. recent purchases with credit cards;
4. debts from larceny (theft), breach of trust or embezzlement; and
5. most federal, state and local taxes and any money borrowed on a credit card to pay those taxes.
All of the categories of non-dischargeable debts in bankruptcy have specific rules and exceptions and each situation has its own challenges. If you have a debt that may fall into a non-dischargeable category, discuss your situation with a qualified bankruptcy attorney and learn your options. Your attorney can provide options for managing, repaying, or discharging the debt.