One of the biggest benefits of bankruptcy is the ability to discharge your debts. Discharges are given at the end of the bankruptcy process and permanently eliminates all eligible debts. It is important, however, to understand which debts can and cannot be discharged by bankruptcy before going head-on into filing.
Before we take a look at debts that can be discharged by bankruptcy, we first need to observe the debts that cannot be discharged. There are three categories of debts:
- Those that can never be discharged for any reason
- Those can be denied a discharge due to a challenge by a creditor
- Those that usually cannot be discharged unless you are able to successfully argue in favor of it
Here are the main types of debts that cannot be discharged under any circumstance by neither Chapter 7 or Chapter 13 bankruptcies:
- Child support
- Certain past-due taxes
- Personal injury debts sustained by driving under the influence
- Attorney fees from child custody or support cases
- Criminal fines/penalties/restitutions
Here are debts that creditors can argue against:
- Debts gained from willful malicious acts
- Debts gained from fraud
- Debts gained from crimes such as embezzlement, larceny, or breach of fiduciary duty
- Any debt or creditor that you do not include in your bankruptcy papers
Student debt is the only debt that you may be able to successfully argue a discharge for, however, you must prove that you are reasonably unable to pay off the debt. In Kentucky, student loan debt can almost never be discharged.
We have adopted the Brunner test (case law) which essentially states that we must prove undue hardship and demonstrate that you have made a good faith effort to pay the debt back in the past, that you have no ability to pay the debt now, and you are unlikely to be able to pay the debt back in the future. Oftentimes, most clients are better off seeking an income-based repayment plan instead.
Additionally, arguing dischargeability of student loan debt requires the filing of an adversary proceeding which is a trial within the bankruptcy itself. It is usually expensive and unaffordable for individuals who are already having difficulty meeting their other obligations.
Even though the list above seems extensive, the types of debts that can be discharged are much more useful and more common to the average consumer.
Here is a list of debts that can be forgiven by Chapter 7 and Chapter 13:
- Credit card debt
- Medical debt
- Personal loans
- Lawsuit judgments
- Debts gained from most car accidents
- Past-due leases and contracts
- Promissory notes
There are also debts that can be forgiven only by Chapter 13:
- Court fees
- Marital debts stemming from divorce (except support debts)
- HOA, condo, and co-op debts
- Retirement plan loan fees
- Debts from previous bankruptcies
Contact Our Kentucky Bankruptcy Team Today
We understand the impact an overwhelming financial situation can make on your everyday life. With our decades of experience, we are prepared to assist you with compassionate and personalized services to help you find financial freedom.
If you believe bankruptcy could be your best option for debt relief, contact us today through our website or give us a call at (270) 200-6326 to schedule a consultation!