Posts Tagged ‘Discharge of Debts’
1. All debts must be listed. It is illegal to pick and choose when listing your creditors. All creditors must be listed even the ones you intend to pay after filing i.e. your mortgage
2. You may have to turn over tax refunds to the bankruptcy trustee. Part or all of any tax refunds due for the tax year a bankruptcy case is file may be required to be turned over to the trustee.
3. You must list all business information if you are self-employed. You must list all personal and business debts, assets and income.
4. You need to refrain from incurring new debts before filing. Intentionally incurring debts with the intent not to pay may be a crime.
5. Keep making your house and car payments if you intend to keep the property.
6. Lying can get your case thrown out of court. The Court may disallow a bankruptcy if a client misrepresents any facts or otherwise lies on the papers filed in the bankruptcy.
7. Bankruptcy stops all bill collectors. The creditors including tax collectors are barred from attempting to collect any debt from you the instant the petition is filed. Bankruptcy does not stop any criminal proceeding or government regulatory proceeding.
Most people are aware that there are three main debts that are non-dischargeable; (1) Student Loans, (2) money owed to IRS or state taxing agency, and (3) back child support. However, that is not the end of the list. Here are other non-dischargeable debts that are less common, but still important to note:
(1) A judgment against you for a willful and malicious injury (i.e., assault & battery)
(2) An obligation arising from auto accident that involved alcohol
(3) If a creditor alleges false pretenses, false representations, or actual fraud
(4) If a debt is based on a false (or falsified) financial statement (i.e., a lie on a loan application)
(5) Cash advances of $750 or more taken within 70 days of filing
(6) Debts arising while acting as a fiduciary (i.e. embezzlement or larceny)
(7) Fines or penalties owed to a governmental unit
(8) Condominium dues (if the condominium is not surrendered)
LAST – AND MOST IMPORTANTLY
(9) Any debts not originally listed on your bankruptcy petition
The goal of a bankruptcy is to obtain a discharge of debts. When a debt is discharged, it is no longer collectable against the debtor personally.
When you have a personal liability for a debt, a creditor with a judgment can use the legal system to collect on that debt with assets that were either pledged as colleteral or other assets. The bankruptcy discharge eliminates the debtor’s personal liability.
The discharge prevents creditors from beginning or continuing any law suit to enforce a discharged debt against the debtor or the debtor’s property. Any judgment as to a debt arising before the bankruptcy began is void after the discharge. However please keep in mind that some debts are not dischargeable in bankruptcy and they are unaltered by the bankruptcy discharge and remain just as valid as they were before the bankruptcy.
Clients often use the terms “discharged” and “dismissed” interchangeably; however, their significance is extremely important because they have an opposite effect on whether or not you have to pay certain debts back.
A discharge releases the debtor from the personal legal liability for certain types of debt. In other words the individual would not be required to pay those debts that have been discharged.
A dismissal means that the case concluded before a discharge could be entered. In other words the individual is in the same position, with regards to their debts, as they were before they filed.
The discharge in a Chapter 7 bankruptcy wipes out many types of debt, including unsecured credit card debt, utility bills, back rent, medical bills, uninsured car accident judgments, amounts owed on repossessed or surrendered vehicles, and various other unsecured debts. The discharge accomplishes this by relieving the debtor of personal liability for these debts and preventing creditors from ever pursuing these debts in the future.
However, there are certain types of debt that won’t be discharged in a Chapter 7. These debts include most tax debt, criminal restitution, domestic support obligations such as child support, maintenance, and alimony, most student loans, debts related to drunk driving, and debts incurred by fraud.
Secured debts such as car loans and mortgages can also be discharged in a Chapter 7. This means that if you do not want your car or house you can walk away from these debts in a Chapter 7 bankruptcy. However, valid liens survive the discharge and remain in effect after the bankruptcy. This means secured creditors can still bring actions such as foreclosures and repossessions to enforce valid liens post-bankruptcy. Thus, in order to retain collateral such as a house or a car, Chapter 7 debtors must either reaffirm secured debt or make arrangements to redeem the collateral.