Chapter 7 bankruptcy works by liquidating your non-exempt assets to pay off as much of your debt as possible, leaving you with little or no further responsibility to repay. However, there are certain types of debt that cannot be canceled (“discharged”) via this process. Therefore, Chapter 7 bankruptcy will be more helpful for those who do not have significant amounts of non-dischargeable debt.

Debts that cannot be discharged include:

  • Most taxes
  • Child support
  • Alimony
  • Criminal fines
  • Parking tickets
  • Court restitution orders
  • Debts due to fraud, theft or embezzlement
  • Damages for willful or malicious injury to another person or their property
  • Damages for personal injuries inflicted upon another as a result of intoxicated driving
  • Debts arising out of a property settlement in a divorce
  • Debts owed to the Department of Public Aid, Unemployment Compensation, or other public benefit agency
  • Student loans (unless it is determined that paying back the loan would impose an undue hardship on you and your dependents)
  • Some other types of debts and unpaid fees

As a general rule, any money you owe as a result of fraud, deceit or manipulation will not be forgiven. Bankruptcy law does not take kindly to dishonesty or cheating of any sort, and it is not willing discharge debts incurred as a result of underhanded activity. Additionally, debts incurred after your bankruptcy petition is filed will not be discharged in the pending bankruptcy case, nor will any debts which the court determines you can afford to pay. Finally, any unpaid debts that the court refused to discharge in a previous bankruptcy filing will remain non-dischargeable in any future bankruptcy actions.

The short story is that after the bankruptcy procedure is complete, you will still be responsible for paying all your non-dischargeable debts. These will continue to drag down your credit score until taken care of.

Of course, there are fine distinctions and exceptions to these categories of non-dischargeable debt. This makes it all the more important to consult an experienced Illinois bankruptcy attorney. Some of these nuances in the law are explored below.

Taxes: Many taxes are not dischargeable. However, personal income tax may be dischargeable if all of the following conditions are met:

  1. You filed an individual tax return for the year in question.
  2. The return filed was not fraudulent.
  3. It has been more than three years since the taxes were due, and at least two years since the return was filed.

Domestic support obligations: This category of non-dischargeable debts includes alimony, maintenance or support owed to a spouse, former spouse, child, or child’s other parent. Generally, these are financial obligations established by a separation agreement, divorce decree, property settlement agreement, or court order.

Secured debts: Note that “secured debts” (such as car loans or mortgages) are not dischargeable unless you agree to return the financed property (e.g., the car, house, refrigerator, furniture, etc.) to the creditor. In other words, don’t expect to wipe out these debts without returning the items you haven’t yet paid for.

Most of these exemptions to discharge are self-enforcing. That is, no matter what your excuses are for not paying, and even if your creditors don’t object, you will still be responsible for these non-dischargeable after the bankruptcy proceeding is complete. However, there are some discharge exemptions that require special action on the part of your creditors if they do not want to see you let off the hook; these types of debt will be discharged unless your creditors convince the court that they shouldn’t be:

  1. Fraud (common example: fees resulting from utility “tapping”—the illegal usage of a service provided by a utility, which is essentially stealing)
  2. Theft, embezzlement or defalcation while acting in a fiduciary capacity
  3. Damages for willful or malicious injury to another person or their property

It is not hard for your creditors to convince the court that the above types of debt should not be relieved. Basically, if your creditors simply take the appropriate steps (i.e. object to the discharge and file the necessary papers), the court will almost always rule in their favor and render these debts non-dischargeable.

When it comes to student loans, however, the process works the opposite way. Student loans are considered non-dischargeable as a general rule, unless you obtain a ruling from the court that the debt should be discharged because paying back the loan would impose an “undue hardship on you or your dependents.” A skilled Chapter 7 bankruptcy lawyer is therefore critical if student loans make up a significant portion of your debt.

Finally, if you are thinking of filing for bankruptcy, it is extremely important that you stop using your credit card for all but the most essential purchases. Charges made in the months leading up to the filing of your bankruptcy petition are especially scrutinized. If there is any evidence that you made these charges with no intent to repay, the court will consider these debts non-dischargeable. Specifically, credit-card charges or cash advances for “luxury goods or services” purchased within 90 days of filing will most likely not be discharged. If you are unsure whether a particular purchase qualifies as a “luxury good or service,” contact a Joliet or Will County bankruptcy attorney for clarification.

As complicated as it seems, the bankruptcy process has been designed with fairness in mind. If you are careful not to abuse the system, you will be more likely to benefit from a Chapter 7 bankruptcy proceeding. We are here to help you achieve this. Call Hamilton & Antonsen, Ltd. at 815-729-9220 for further information or to contact an affordable Will County bankruptcy attorney.

Written by: Sarah Hanneken