Debts Not Affected By Discharge (Part 1 of 2)

Nondischargeable debts. Chapter 7 bankruptcy does not discharge every kind of debt. If we look at Section 523 of the Bankruptcy Code, it sets forth a laundry list of different types of obligations that are not dischargeable. The best way to understand the likely difference between the dischargeable debts and the non-dischargeable debts are to think of acts committed by the debtor which amount to intentional wrongs (intentional torts). Generally, intentional acts of wrongdoing, such as fraud, are not dischargeable.

Public policy. Other types of debts which are not going to be dischargeable are debts that have a very important social aspect to them, separate and apart from the monetary debt which the obligation represents.

Examples. What are talking about here? Taxes, student loans, alimony, spouse support, child support-these are all obligations that are evidenced by monetary debt, yet they also have extreme social, importance to society at large, separate and apart from the money that is owed. The public policy of every state is that persons must support their children. They must support the spouses when ordered to do so. They must pay their taxes, they must pay back their student loans and in fact the Bankruptcy Code very clearly provides that most of those kinds of societal obligations are not going to be discharged. In addition, Chapter 7 does not discharge debts arising from a divorce or marital separation agreement, (for example a property division or equalization judgment).

There are some minor exceptions:

Discharging Income Taxes . Taxes owed to the United States or any state, county, or other governmental entity are normally nondischargeable, however, income taxes will discharge if all of the following criteria are met:

1. The taxes are more than three years old at the time the Bankruptcy was filed. (The three-year period begins to run from the time the returns were due, plus any periods of extension);


2. If the return was not filed on time, more than two years has expired since the return was filed;


3. If there was an assessment, more than 240 days have expired from the date of the assessment before the bankruptcy is filed;


4. There has been no fraud.
   

Caveat: If you intend to discharge taxes with your bankruptcy filing, we recommend that you obtain a complete history of your tax obligations for each specific year in question from the I.R.S. and consult a tax professional before filing the bankruptcy. To get your Federal IRS tax history, call the IRS at 800-829-1040and ask them for a report called MFTRA-X. Tell them you want the MIFTRA-X for each year that you owe them for. They will mail you the reports, and might even fax them if you ask them nicely; Also note that a bankruptcy discharge does not automatically remove any filed or recorded tax lien on any property which you own.

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