Many Kentuckians who seek discharge of their debts under Chapter 7 of the United States Bankruptcy Code are surprised to learn that some debts cannot be discharged. The types of debts that cannot be discharged in a personal bankruptcy are enumerated in the Bankruptcy Code, and this post will provide a summary of these kinds of obligations.
The non-dischargeable nature of certain debts is fairly obvious. Past due federal, state and local taxes may not be discharged. Child support and alimony likewise cannot be discharged in a Chapter 7 proceeding. Other non-dischargeable debts may not be so obvious. Fines, penalties and restitution imposed by a government agency cannot be discharged. Personal injury damages owed to others as the result of the debtor's drunk driving cannot be discharged. Debts obtained through fraud, embezzlement, larceny or breach of fiduciary duty cannot be discharged if the creditor objects to discharge during the bankruptcy proceeding and proves that the debt falls within the prohibited category.
Educational loan debts provide something of a special case. In most cases, educational loans may not be discharged in a Chapter 7 proceeding. However, the bankruptcy code permits educational loans to be discharged if repayment would impose an "undue hardship" on the debtor. The bankruptcy code does not define undue hardship, but courts have worked out a three part test: undue hardship exists if (a) paying off the loan will prevent the debtor from maintaining a minimum standard of living; (b) the financial circumstances that satisfy the income test will persist for a substantial portion of the repayment period; and (c) the debtor must have made a good faith effort to repay the loan before filing the bankruptcy petition.
Anyone with questions about which claims can be discharged in a Chapter 7 bankruptcy may want to consult an experienced bankruptcy attorney. Such a consultation can provide helpful information about all aspects of a person's eligibility for bankruptcy, including the dischargeability of various debts.
Source: FindLaw, "Debts that Remain After a Chapter 7 Discharge," accessed on June 10, 2017