Written by Lexington/Columbia Bankruptcy Lawyer, Lex A. Rogerson, Jr.
In most cases, discharging debt is a major, if not the sole, reason for filing bankruptcy. You file bankruptcy to get a fresh start and get on down the road of life.
While bankruptcy can discharge most debts, there are important exceptions that can affect your decision of what chapter to use – and, in some cases, whether to file bankruptcy at all.
Several provisions of bankruptcy law have the effect of keeping debts alive after bankruptcy, at least in certain respects. The most obvious of these is section 523 of the Bankruptcy Code, which sets out the explicit exceptions to discharge. Congress has made the policy judgment that people simply should not be able to wipe out 19 special kinds of debts. The most common examples are alimony and child support, other domestic relations obligations, most taxes, student loans, government fines, and damages for injuring someone while driving under the influence.
Additionally, debts associated with certain kinds of misconduct can be non-dischargeable if the creditor raises the issue during the bankruptcy case. These kinds of misconduct include mis-handling funds the debtor held in trust; intentionally injuring others or their property; or obtaining money, property, or credit by fraud or misrepresentation. Courts have uniformly held a debt is fraudulent and non-dischargeable if the debtor did not intend to pay the debt when he incurred it.
Other bankruptcy rules mean that certain aspects of a debt can survive. For example, with most secured debts, such as mortgages and car loans, the creditor’s lien on the collateral (e.g., the house or the car) survives or “rides through” a bankruptcy case. If the debt is not paid, the creditor can foreclose or repossess when the bankruptcy case is over even though it cannot sue the debtor for money. If the debtor wishes to keep the collateral, therefore, he must continue to pay the debt.
In some situations, the debtor may find it advantageous to reaffirm a debt. The most common example is a car loan. The bankruptcy code now says that if a debtor fails to reaffirm a car loan, the creditor can declare the loan in default even if the payments are current. To avoid the risk that the creditor will repossess the car, my clients frequently chose to reaffirm, which means that particular debt is not discharged.
In a prior post, we explained which kinds of taxes can and cannot be discharged. In future posts, we’ll discuss other kinds of debts that can’t be wiped out. You can also check out this video put out by the U.S. Courts for an overview of this topic.
Photo Credit: Charleston Photographer Marissa DeMott of Hazel Eyes Photography.
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