Bankruptcy can eliminate many common debts, but it does not erase every financial obligation. Some debts are usually dischargeable, some generally survive bankruptcy, and others depend on the facts of the case.
Whether a debt can be discharged may depend on:
- The type of debt
- Whether the filer uses Chapter 7 or Chapter 13
- When and how the debt was incurred
- Whether fraud or misconduct is alleged
- Whether a creditor challenges the discharge
- Whether the filer completes all required steps
A bankruptcy discharge generally releases a filer from personal liability for qualifying debts. Creditors can no longer continue collection efforts on debts that have been discharged.
However, eliminating personal liability does not always remove a lien from property. A mortgage lender or vehicle lender may still have rights against the property securing the loan.
If you are unsure which of your financial obligations may qualify for relief, our bankruptcy attorneys in New Jersey can review your debts and explain how Chapter 7 or Chapter 13 may affect them.
Quick Answer: What Debts Can and Cannot Be Discharged?
Debts that are often dischargeable include:
- Credit card balances
- Medical bills
- Unsecured personal loans
- Payday loans
- Past-due utility bills
- Certain lease and contract obligations
- Certain deficiency balances after repossession or foreclosure
- Some older income tax debts when strict requirements are met
Debts that are generally not dischargeable include:
- Child support
- Alimony
- Many recent tax debts
- Criminal fines and restitution
- Debts caused by fraud
- Debts arising from willful and malicious injury
- Certain debts caused by intoxicated driving
- Most qualifying student loans unless undue hardship is proven
- Certain divorce-related obligations
- Debts incurred after the bankruptcy filing
These are general categories, not automatic outcomes. Chapter 7 and Chapter 13 do not provide identical discharges, and some debts require a separate court ruling.
What Does It Mean to Discharge a Debt?
Discharging a debt generally means the filer is no longer personally responsible for paying it. The creditor must stop collection attempts, including calls, letters, lawsuits, and wage collection related to that discharged obligation.
A discharge is different from several other bankruptcy concepts:
- Eliminating personal liability: The filer is no longer legally responsible for paying the debt.
- Removing a lien: A creditor’s legal interest in property may remain even when personal liability is discharged.
- Stopping collection: Creditors must stop pursuing payment on discharged debts.
- Dismissing a case: A dismissal ends the bankruptcy case without necessarily granting relief.
- Receiving a discharge: A discharge is the court order that releases the filer from qualifying debts.
A Discharge Does Not Always Let You Keep Secured Property
Mortgages and vehicle loans are secured by property. Bankruptcy may eliminate the filer’s personal responsibility for some secured debt, but it does not automatically remove the lender’s lien.
For example, a filer may no longer be personally responsible for a mortgage deficiency after bankruptcy. However, the lender may still be able to foreclose if mortgage payments are not maintained.
Debts That Can Usually Be Discharged
Credit Card Debt
Ordinary credit card balances are generally unsecured debts and are commonly discharged in bankruptcy.
Exceptions may apply when the debt involves:
- A fraudulent credit application
- Purchases made without an intent to repay
- Large luxury purchases shortly before filing
- Recent cash advances
- Other evidence of misrepresentation
A creditor may challenge the discharge if it believes the debt was incurred through fraud.
Medical Bills
Most unpaid medical bills are unsecured and may qualify for discharge.
This can include:
- Hospital bills
- Emergency room charges
- Physician balances
- Laboratory bills
- Ambulance expenses
- Uninsured treatment costs
There is generally no separate discharge category for medical debt. It is commonly treated like other unsecured debt.
Unsecured Personal Loans
Unsecured loans from banks, online lenders, friends, or family members may generally be discharged.
A personal relationship does not allow the filer to leave the debt out of the bankruptcy paperwork. Loans from relatives and friends must still be disclosed along with other financial obligations.
Fraudulently obtained loans may be treated differently.
Payday Loans
Payday loans are generally unsecured and may be dischargeable.
However, a lender may challenge the discharge if it claims the loan was obtained through fraud, false information, or an intentional plan not to repay it.
Past-Due Utility Bills
Past-due utility bills may qualify for discharge, including unpaid:
- Electricity bills
- Gas bills
- Water bills
- Phone bills
- Internet bills
Bankruptcy may eliminate an older balance, but the utility provider may require a deposit before continuing or restoring service.
Back Rent and Certain Lease Obligations
Unpaid rent that arose before the bankruptcy filing may be dischargeable.
However, bankruptcy does not always allow a tenant to remain in a rental property. It also does not stop every eviction, particularly when a landlord has already obtained a judgment or another exception applies.
Deficiency Balances After Repossession or Foreclosure
A deficiency balance is the amount still owed after repossessed or foreclosed property is sold.
For example, suppose a vehicle is repossessed with $20,000 remaining on the loan. If the lender sells it for $14,000, the remaining $6,000 may become an unsecured deficiency balance. That balance may qualify for discharge.
Certain Civil Judgments
Some ordinary money judgments may be discharged, especially when they arise from contracts, unpaid bills, or other unsecured obligations.
Judgments based on fraud, deliberate harm, criminal restitution, domestic support, or intoxicated driving may not be dischargeable. The reason behind the judgment is often more important than the fact that a judgment exists.
Debts That Generally Cannot Be Discharged
Child Support and Alimony
Child support and alimony are domestic support obligations and generally cannot be discharged.
These obligations remain payable after bankruptcy. Chapter 13 filers may also need to remain current on ongoing support and address past-due amounts before receiving a discharge.
Most Recent Tax Debts
Many tax obligations cannot be discharged, including:
- Recent income taxes
- Payroll or trust fund taxes
- Fraudulent tax liabilities
- Taxes connected to unfiled or improperly filed returns
- Taxes the filer willfully attempted to evade
Some older income tax debts may qualify, but only when strict filing, timing, and conduct requirements are met. The commonly discussed timing rules should not be treated as an automatic guarantee.
Criminal Fines and Restitution
Bankruptcy generally does not eliminate:
- Criminal restitution
- Court-ordered criminal fines
- Many governmental penalties
These obligations are treated differently from ordinary consumer debt because they arise from criminal or governmental enforcement.
Debts Caused by Fraud or False Representations
Debts obtained through dishonest conduct may not be dischargeable.
Examples include:
- False loan applications
- Fraudulent financial statements
- Material misrepresentations
- Embezzlement
- Larceny
- Breach of certain fiduciary duties
In some cases, the creditor must file a separate adversary proceeding and persuade the bankruptcy court that the debt should be excluded from discharge.
Debts for Willful and Malicious Injury
A debt arising from deliberate harm to another person or their property may not be dischargeable.
This generally requires more than ordinary carelessness. A negligent accident may be treated differently from conduct intended to cause injury or undertaken with knowledge that harm was substantially certain.
Debts From Intoxicated-Driving Injuries
Debts arising from death or personal injury caused by unlawfully operating a vehicle while intoxicated are generally not dischargeable.
This can include certain damages or compensation owed to people injured in the crash or to the families of those who were killed.
Certain Divorce and Separation Obligations
Child support and alimony generally survive bankruptcy.
Other divorce-related obligations, such as debts assigned through a property settlement, may be treated differently depending on whether the filer uses Chapter 7 or Chapter 13 and how the obligation is classified.
Debts From Tax-Advantaged Retirement Plan Loans
Loans taken from a 401(k), 403(b), or similar retirement plan are not generally treated like ordinary unsecured personal loans.
Because the filer is effectively borrowing from their own retirement account, bankruptcy does not usually erase the repayment obligation in the same manner as a bank loan or credit card balance.
Debts Incurred After Filing
A bankruptcy discharge generally applies to qualifying debts that existed before the filing date.
New credit card charges, medical bills, loans, utility balances, and other financial obligations incurred after filing usually remain the filer’s responsibility.
Debts That May Be Discharged Only in Certain Situations
Not every debt fits neatly into a “dischargeable” or “nondischargeable” category. Some obligations require a closer review of when the debt arose, how it was created, and which bankruptcy chapter is filed.
Student Loans
Qualifying student loans are generally not discharged automatically when someone files bankruptcy.
A borrower typically must file a separate lawsuit within the bankruptcy case, called an adversary proceeding, and show that repayment would create an undue hardship. Filing bankruptcy alone is not the same as successfully obtaining a student-loan discharge.
The Department of Justice and Department of Education now use a standardized review process for federal student-loan cases. Borrowers must still establish undue hardship, but the process is intended to make appropriate cases easier to evaluate consistently.
Older Income Tax Debt
Some older income tax debts may qualify for discharge, but several requirements must be satisfied.
The analysis may depend on:
- How old the tax obligation is
- When the return was originally due
- When the return was actually filed
- When the tax was assessed
- Whether fraud or attempted evasion occurred
- Whether a prior bankruptcy or collection proceeding changed the timing
Tax rules are highly technical. Meeting one timing requirement does not automatically make the debt dischargeable.
Unlisted Debts
Leaving a creditor out of the bankruptcy paperwork can create serious complications.
The outcome may depend on whether the creditor knew about the case, whether assets were available for distribution, and whether the creditor lost the opportunity to file a claim or challenge the discharge.
Debts involving fraud, intentional harm, or another legal exception may remain nondischargeable even when the creditor had notice. Federal law specifically considers whether an omitted creditor had timely notice or actual knowledge of the bankruptcy.
Secured Debts
Secured debts are tied to property, such as a home or vehicle. Depending on the case, a filer may be able to:
- Surrender the property
- Continue making payments
- Reaffirm the debt
- Redeem qualifying property
- Catch up on missed payments through Chapter 13
Discharging personal liability does not automatically remove the lender’s lien. A lender may still repossess or foreclose on the property if required payments are not made.
Homeowners Association and Condominium Fees
The treatment of homeowners association or condominium fees may depend on when the charges became due and whether the filer continues to own or occupy the property.
Older fees may be treated differently from assessments that arise after filing. Continued ownership can also create new obligations even after other debts are discharged.
Lawsuit Judgments
A court judgment is not automatically dischargeable or nondischargeable. The reason behind the judgment matters.
An ordinary judgment involving a contract, personal loan, or unpaid bill may qualify for discharge. A judgment based on fraud, intentional injury, domestic support, criminal restitution, or intoxicated driving may remain payable.
Does Chapter 7 Discharge the Same Debts as Chapter 13?
Chapter 7 and Chapter 13 share many discharge rules, but they are not identical. The right chapter depends on the filer’s income, property, debts, and long-term goals.
Chapter 7
Chapter 7 is generally the faster option and is commonly used to eliminate unsecured debts such as credit cards, medical bills, and personal loans.
Important features include:
- No three- to five-year repayment plan for most unsecured debts
- Possible liquidation of nonexempt property
- A relatively quick discharge when requirements are completed
- Fewer options for catching up on mortgage or vehicle arrears
- A narrower discharge for certain debt categories
Chapter 7 may work well for someone whose primary problem is unsecured debt and who does not need a long repayment period to protect secured property.
Chapter 13
Chapter 13 uses a court-approved repayment plan that usually lasts three to five years.
It may allow a filer to:
- Catch up on mortgage or vehicle payments
- Pay priority debts through the plan
- Protect qualifying property
- Manage multiple obligations through one payment structure
- Receive a discharge after completing the plan
Some debts may receive different treatment under Chapter 13 than under Chapter 7. However, major exceptions still apply, including domestic support obligations and many student loans, taxes, and criminal debts.
Can the Court Deny Your Entire Bankruptcy Discharge?
Yes. Denial of the entire discharge is different from deciding that one specific debt cannot be discharged.
Conduct that may jeopardize the complete discharge includes:
- Hiding or transferring assets
- Destroying financial records
- Lying in bankruptcy documents or under oath
- Failing to explain missing property
- Disobeying court orders
- Refusing to cooperate with the trustee
- Failing to complete required financial courses
- Filing another case before the applicable waiting period has passed
Bankruptcy depends on full and honest disclosure. Serious misconduct can result in the loss of bankruptcy relief and may create additional legal consequences.
Do You Have to List Every Debt?
Every debt should be disclosed, including obligations the filer believes cannot be discharged or intends to continue paying.
That includes:
- Loans from friends or relatives
- Disputed debts
- Collection accounts
- Lawsuit judgments
- Tax obligations
- Child support and alimony
- Co-signed debts
- Secured loans
- Debts the filer wants to keep paying
A filer does not get to choose which creditors are included. Complete disclosure allows the court, trustee, and creditors to evaluate the case properly.
Leaving out a debt may delay the case, affect the discharge, or require the filer to reopen the bankruptcy later.
Questions to Ask Before Filing
Before choosing Chapter 7 or Chapter 13, consider:
- Which debts are unsecured?
- Which debts are tied to collateral?
- Could any older tax debts qualify for discharge?
- Are child support or alimony payments past due?
- Were substantial debts incurred shortly before filing?
- Has any creditor alleged fraud?
- Is keeping a home or vehicle a priority?
- Would Chapter 7 or Chapter 13 better support that goal?
- Could a previous bankruptcy affect eligibility for another discharge?
A detailed debt review can help identify problems before the case is filed.
Speak with a Bankruptcy Attorney Today
Bankruptcy can discharge many common unsecured debts, including credit card balances, medical bills, personal loans, and some civil judgments. However, support obligations, many taxes, criminal penalties, fraud-related debts, student loans, and several other obligations may remain.
The name of the debt does not always determine the outcome. The bankruptcy chapter, timing, supporting records, creditor actions, and reason the debt arose can all affect whether it is discharged.
If you are considering bankruptcy and need to understand which obligations may remain, contact our bankruptcy attorneys in New Jersey to review your debts and explore your available options.
