All Debts are Not Treated Equally in Bankruptcy

Paul Richardson Bankruptcy, Debt

There are few laws on the books in the United States that are as important as our bankruptcy laws. They work as a way for people who find themselves in difficult circumstances to find relief from financial obligations and gain some breathing room in life. By declaring bankruptcy, a debtor is able to erase most, if not all, the financial debts that can act as such a heavy burden. But a mistake many people make is assuming that all debts can be discharged in bankruptcy.

There are several types and kinds of debts that are not dischargeable in a bankruptcy proceeding. Some are obvious and well defined, while others can be subjective and subject to judge’s decision as to whether the debt is dischargeable. So, before declaring bankruptcy, or exploring whether it is a good option, it is important to know what kind of debt you have, and whether it is dischargeable in a bankruptcy.

Some of the exceptions to the bankruptcy code are obvious. For example, if a debt is incurred as a fraudulent debt that was obtained through false pretenses or as a way to take advantage of the bankruptcy code, then they are not dischargeable. While this is obvious, there are other exceptions that are not as easy to understand.

Student loans are a good example of a debt that are not generally dischargeable, but not obviously exempt. Under federal law, most student loans are guaranteed by the federal government. As a result, and because of people trying to game the system, most types of student loan debt cannot be discharged under a declaration of bankruptcy.

Debts From a Divorce Proceeding

Another type of non-obvious debt that cannot be discharged in bankruptcy are those debts incurred during a divorce. Those debts which are owed to a spouse, but not a domestic support obligation, and incurred in a divorce are not able to be discharged in bankruptcy. This is the lesson that was learned recently by a California woman who sought to have a particular debt discharged.

In that case, a woman sought to have attorney’s fees owed to her previous husband discharged in bankruptcy. The problem was that she was charged with the attorney’s fees as a result of her divorce from her former husband, and therefore the fees constituted a debt incurred in a divorce, and which were owed a spouse. This is the textbook definition of a type of debt which is not dischargeable in a bankruptcy proceeding. So in the end the woman had to pay her ex-husband for the attorney’s fees.

Finding Out Whether Your Debt Qualifies

This article discussed just a few of the exceptions and rules that apply in a bankruptcy. This area of law is complex and requires the experience and knowledge of a qualified professional to accurately and properly assess your options, and execute the best bankruptcy proceeding available. This is exactly what we offer at The Bankruptcy Law Center. Our team of dedicated professionals will guide you through all of you options, and give you peace of mind when it comes to your bankruptcy. Contact us today.

(image courtesy of Jimi Filipovski)