Most of the time we can tell which debts will be legally written off in bankruptcy. There are two exceptions.
At the end of your bankruptcy case when the judge enters the discharge order that will “discharge”—legally write off—your debts, that order will apply to most of your debts. But not all.
The discharge order won’t include a certain special debt or two that you may decide you don’t want to discharge because you want to keep the collateral, such as a vehicle loan. A “reaffirmation agreement” that you voluntarily enter into and is filed on time at the bankruptcy court excludes that debt from discharge. You would owe that debt either in full or with any limitations stated in the “reaffirmation agreement.”
Debts Not Discharged As a Matter of Law
The Bankruptcy Code excludes certain kinds of debts from discharge, the most common of which include:
- most, but not all, taxes
- debts incurred through fraud or misrepresentation, including certain recent cash advances and “luxury” purchases, but only if the creditor objects to the discharge
- debts which were not listed on the bankruptcy schedules on time
- money owed because of embezzlement, larceny, or through other kinds of theft or fraud in a fiduciary relationship, but again only if the creditor raises an objection to discharge
- child and spousal support
- claims against you for intentional injury to another person or property, if the creditor objects
- most, but not all, student loans
- claims against you for causing injury or death to someone by driving while intoxicated
When Discharge Is Unpredictable
Going back to today’s title, most of the time your attorney can reliably tell you in advance whether a particular debt will be discharged in your bankruptcy case. But in two sets of circumstances that’s not predictable:
1. With certain types of debts—the ones described in items b, d, and f of the list above—the debt would be discharged unless the creditor raises an objection by a specific deadline (which is usually 60 days after your meeting with the trustee) AND establishes that the debt should not be discharged under the standards that the law lays out. If you are completely honest with your attorney at the beginning of your case about the situation, he or she may well be able to gauge how much of a risk there would be that a particular creditor would raise an objection to the discharge of its debt. Your attorney would also be able to gauge, at least roughly, how much of a risk you have that the creditor would prevail if it would object. But with these types of debts neither your attorney nor you will know for sure whether that debt will be discharged until either the creditor objects or the deadline for objection passes without objection; and if the creditor objects, until the full facts of the matter unfold.
2. With the other types of debts—the ones described in items a, c, e, g, and h of the list above—usually it’s quite clear whether a particular debt fits or doesn’t fit within one of these exceptions to discharge. But to be honest and practical, sometimes at the beginning of the case the facts are not sufficiently clear or how the law should be applied to the facts is not clear. So whether a debt fits within one of these exceptions can be ambiguous. Sometimes the pertinent facts are simply not available, the additional work to get them is not worth the cost, or there is no time to do so because of the need to file the case quickly. And sometimes the Bankruptcy Code uses broad language that is interpreted differently by different judges. So there are situations in which you know for sure at the start of the case whether a particular debt will be discharged.
To illustrate with an example—assume that someone has a claim against you for causing personal injury to someone while you were driving while intoxicated (the last exception to discharge in the above list). You might think that exception sounds like it would either clearly apply or not. But not necessarily. What if the accident happened in a remote are so that the police did not arrive on the scene until hours later, so that it’s unclear whether you were legally intoxicated? What if there wasn’t enough evidence for a criminal conviction but possibly enough for a civil judgment against you? Under these kinds of circumstances, the relevant facts may not be known until a possible future trial. And even if the facts were clear, the law may not be settled about how to apply those facts to come to a decision. In these kinds of situations your bankruptcy attorney will not be able to tell you with certainty whether a particular debt will be discharged.
But USUALLY It IS Predictable
Most situations are not gray but are quite black and white—usually your attorney CAN tell you with a high degree of confidence whether any particular debts will or will not be discharged. Indeed, in a large percentage of Chapter 7 cases all debts that you want to discharge will be discharged. And if you have any debts that won’t be discharged—such as support obligations or recent income taxes—that will be quite clear. It is only relatively unusual situations when it is not so clear. That’s when your attorney has to make a judgment call about the likelihood that a creditor would raise an objection by a creditor, and if so on how likely the objection would succeed.