Chapter 7 bankruptcy is conversationally referred to as “fresh start” bankruptcy because, unlike its Chapter 13 counterpart, it eliminates or “discharges” most consumer debts. But Chapter 7 should not be mistaken as a means of completely doing away with all personal debts that one may have. Some debts may remain after the completion of the bankruptcy.
To begin with, if the schedule of debts filed with the bankruptcy court does not include some debts, then those debts cannot be discharged.
Possibly the most notorious debt that is resistant to Chapter 7 discharge is the student loan. This type of loan may be subject to discharge, but bankruptcy law places significant restrictions on how a debtor may accomplish this.
Unless the debtor can demonstrate that having to continue paying a student loan would be an “undue hardship” — which itself is based on calculations of income, the length of time left in the repayment period and prior good-faith efforts to pay the loan — there is a good chance that the student loan will remain.
Other debts that may not be subject to discharge can be broken down into two general groups: debts that are inherently non-dischargeable, and debts that may be removed from discharge if the creditor successfully objects to their discharge.
In the former of these two groups are debts such as amounts owed to the government (taxes, court fees, fines and penalties), child support obligations, debts that could not be discharged in a prior bankruptcy, judgment amounts owed in connection to a wrongful death lawsuit in which intoxicated driving was involved, and certain debts connected to pensions and condominiums.
The latter group of debts includes debts that arose because of some purposely wrongful behavior, such as fraud, theft, or breach of a fiduciary duty, or divorce-related debts if the debtor is able to pay them and not paying them would be more of a hardship on the former spouse than paying them would be on the debtor.
Every bankruptcy case is as unique as the person filing the petition, and this summary of potentially non-dischargeable debts should not be taken as being applicable in every instance. Debtors need to work closely with their attorneys to ensure that all debts that can be discharged under Chapter 7 are in fact discharged.