Not All Debts Disappear: Understanding Chapter 7 Discharge Exceptions in New York
While Chapter 7 bankruptcy offers a powerful fresh start for individuals overwhelmed by debt, it’s crucial to understand that not all financial obligations vanish with your discharge. Certain types of debt automatically do not get discharged in bankruptcy, such as many types of taxes, student loans (unless the debtor can show undue hardship would result from failure to discharge the loans), most government fines and penalties, court restitution orders, domestic support obligations (such as alimony, child support, etc.), and debts in connection with divorce decrees, among others. Understanding these exceptions is vital for making informed decisions about your financial future.
Automatic Non-Dischargeable Debts
Some debts are automatically non-dischargeable without requiring any action from creditors. The following types of debts are not discharged under Chapter 7 bankruptcy: Criminal fines, fees to a government agency and court-ordered restitution, Some categories of taxes (this is usually trust account taxes such as payroll taxes, sales tax, etc) Child support, spousal support and maintenance will not be discharged, At the time of this writing, student loans are effectively not dischargeable but congress is taking a look at changing this (we will keep our fingers crossed!)
Additionally, Personal injury claims that resulted in bodily injury or death from driving a vehicle, boat, or aircraft while intoxicated remain your responsibility even after discharge. These obligations survive bankruptcy because Congress has determined they serve important public policy purposes.
Tax Obligations: Complex Rules Apply
Tax debts follow particularly complex discharge rules. Income taxes due less than three years before a debtor files for bankruptcy are not dischargeable in Chapter 7. Taxes that were due more than three years before the bankruptcy filing, and for which a return was timely filed, are dischargeable. If the tax return was filed late, the taxes are dischargeable only if the return was filed more than two years before the date of the bankruptcy filing. Debts for tax years for which the debtor did not file a return are not dischargeable. Debts for fraudulent tax returns are not dischargeable.
Debts Requiring Creditor Action
Three categories of debts can survive Chapter 7 discharge, but only if creditors take specific legal action. Some debts aren’t automatically excepted from discharge. Creditors must ask the court to determine if they are dischargeable or not. If the creditor doesn’t raise the dischargeability issue or the creditor raises the issue, but the court doesn’t agree, these debts will be discharged.
These potentially non-dischargeable debts include:
- Fraudulent Debts: Debts obtained by fraud or false pretenses. These types of cases tend to stem from misrepresenting income on credit applications or purchasing goods and services on credit with no intent to pay.
- Luxury Purchases: When owed to a single creditor and aggregating to more than $800 (for cases filed between April 1, 2022, and March 31, 2025) and incurred within 90 days of filing for bankruptcy, these debts are presumed fraudulent and nondischargeable.
- Cash Advances: When a debtor obtains more than $1,100 (for cases filed between April 1, 2022, and March 31, 2025) from one creditor within 70 days of filing for bankruptcy, the debt is presumed fraudulent and nondischargeable.
Willful and Malicious Injury
Debts incurred due to willful and malicious injury. You won’t be able to discharge a debt arising from intentionally injuring someone or someone’s property. This includes situations involving domestic disputes, bar fights, or any deliberate harm causing financial obligations.
The Importance of Professional Guidance
Given the complexity of discharge exceptions, working with an experienced chapter 7 attorney is essential. An experienced bankruptcy attorney, such as the bankruptcy attorneys at Starr & Starr, PLLC, can analyze a consumer debtor’s debts to determine if there is a risk of certain debts being automatically nondischargeable, or of potentially being found nondischargeable by the Bankruptcy Court.
The Law Offices of Ronald D. Weiss, P.C., serving Suffolk and Nassau Counties on Long Island, brings over 30 years of experience to help clients navigate these complex issues. The mission of the Law Office of Ronald D. Weiss, P.C. is to offer clients in financial distress empathetic, individualized, and successful legal assistance. We believe everyone deserves a chance to reset and build up from a new opportunity. Our approach makes complicated legal talk secondary.
Strategic Planning Before Filing
Pre-bankruptcy planning may facilitate the dischargeability of certain types of debt. A knowledgeable attorney can help you understand which debts will survive your discharge and develop strategies to address them effectively.
Having a seasoned bankruptcy attorney who takes the time to understand your situation is key. Ronald dives deep into the specifics of your situation, understanding that no two financial challenges are identical. This personalized approach ensures that you understand exactly what debts will remain after your Chapter 7 case concludes.
Moving Forward With Confidence
While not all debts disappear in Chapter 7 bankruptcy, understanding which obligations survive discharge allows you to make informed decisions about your financial future. The individual debtor’s primary concerns in a chapter 7 case are to retain exempt property and to receive a discharge that covers as many debts as possible. A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor.
Don’t let uncertainty about discharge exceptions prevent you from exploring your options. With proper legal guidance, you can navigate the complexities of Chapter 7 bankruptcy and achieve the fresh start you need while understanding exactly which obligations will remain your responsibility.