You Cannot Erase All Debts in Chapter 7 Bankruptcy
by Richard Fonfrias,
J.D. Chicago’s Financial Rescue &
Fonfrias Law Group, LLC
You can erase most debts in Chapter 7 bankruptcy (liquidation). But you cannot erase all debts. Here’s what you need to know before you file for Chapter 7 bankruptcy.
Roadblocks to Erasing Debt
First, the bankruptcy court may not allow you to discharge a debt if you don’t follow the bankruptcy court’s procedures and rules. If this is true for you, then the court may not allow you to file for Chapter 7 bankruptcy at all. In this case, you cannot erase even those debts that otherwise would have been discharged.
Federal Bankruptcy Law specifies 19 types of debts you cannot erase. Some are outright nondischargeable, except in rare circumstances. Others can be discharged unless a creditor raises an objection or unless the bankruptcy court disagrees.
Reasons for Denying Debt Discharge in Chapter 7 Cases
You do not have the absolute right to erase debts. Instead, to discharge debts, you must abide by detailed provisions in the Bankruptcy Code. Section 727(a) outlines grounds for the bankruptcy court’s denying a Chapter 7 discharge.
All of these grounds point to your obligation to comply with bankruptcy rules and procedures. If you don’t follow the rules or provide required information, then a creditor or the bankruptcy trustee maybe object to your entire Chapter 7 case. If the bankruptcy court agrees and does not allow the Chapter 7 discharge, then perhaps none of your debts will be erased, even those that otherwise could have been eliminated.
The bankruptcy court could deny your Chapter 7 bankruptcy discharge if you…
- fail to provide tax documents
- fail to complete a financial management course,
- hide or transfer ownership of property to defraud your creditors,
- hide or destroy accounting books or records,
- lie or commit other fraudulent acts,
- cannot explain assets you lost,
- fail to abide by a court order, or
- fail to allow enough time to pass between previous bankruptcy cases you filed.
Debts That You Can (Almost) Never Erase
The bankruptcy code states that, in almost every case, you cannot erase debts that fall into certain categories. These include…
- debts you fail to list on your bankruptcy petition or include on your mailing list, except in certain circumstances,
- certain taxes,
- spousal or child support or alimony,
- debts owed to a child or former spouse from a divorce or separation,
- fines and penalties owed to government agencies,
- student loans,
- debts arising out of a motor vehicle personal injury when you were drunk,
- debts owed to certain retirement plans,
- debts for cooperative housing fees, like homeowners association dues,
- lawyers’ fees arising from cases involving child custody and support, and
- court fines and penalties, including restitution.
Debts You Cannot Erase Due to a Creditor’s Successful Objection
You cannot erase certain debts if a creditor objects and the court agrees with the creditor. This usually requires that motions be filed with the court and that a hearing be held. These debts include…
- credit card purchases for expensive or luxury goods totaling over $650 and charged within 90 days of the bankruptcy filing,
- cash advances totaling over $925 within 70 days of the bankruptcy filing,
- debts acquired by fraud, and
- debts resulting from malicious injury to another person or his property.
This overview does not list everything that could block erasing your debts. Make sure you look into this topic more fully and discuss it with your bankruptcy lawyer.
As always, you’re invited to call me at 312-969-0730.