The most common misunderstanding clients bring to a bankruptcy office is that filing wipes out every debt. In reality, the law lists categories of debt that are not discharged, or that can be excepted from discharge if a creditor objects. Assistants and paralegals do not advise clients on these questions, but knowing the categories helps you collect the right facts at intake and flag issues for the attorney early.
What follows is a general overview. The Bankruptcy Code, the chapter filed and the facts of each case control the outcome, and those are the attorney's decisions.
Debts that are commonly not discharged
- Domestic support obligations, such as child support and alimony, including amounts that are past due.
- Many tax debts. Some older income taxes may be dischargeable if several timing and filing conditions are met; recent taxes and certain other taxes generally are not. Which rules apply depends on the exact dates and facts.
- Student loans, unless the debtor can show that repayment would cause undue hardship, which usually requires a separate proceeding in the case.
- Criminal fines, penalties and restitution.
- Debts for death or injury caused by driving while intoxicated.
- Certain debts owed to a government unit and some other statutory categories.
Debts that a creditor can ask the court to except
Some debts are discharged unless the creditor objects and proves its case. They include debts based on:
- Fraud or false pretenses, for example a loan application that contained false information.
- Recent luxury purchases or cash advances made shortly before filing. There are presumptions and dollar thresholds for these, which change over time, so the attorney should check current figures.
- Embezzlement, larceny or fraud while acting as a fiduciary.
- Willful and malicious injury to another person or their property.
Creditors who want to challenge dischargeability on certain grounds generally have a short deadline after the meeting of creditors is first set. This is one reason the timeline matters, as described in what happens after a petition is filed.
Debts that are not listed
A creditor who is not listed in the schedules may not receive notice of the case. Depending on the chapter and the facts, an omitted debt can sometimes survive. That is a practical reason to list every creditor, including the ones the debtor would prefer to forget. Missing creditors are one of the most common petition errors.
Chapter 7 and Chapter 13 are different
The Chapter 13 discharge is generally broader than the Chapter 7 discharge, so certain debts that survive Chapter 7 can be addressed through a Chapter 13 plan. That is one of the factors in choosing a chapter. Support obligations, most student loans and similar categories still remain a concern. For the differences, see our Chapter 7 vs. Chapter 13 primer and Chapter 13 plan basics.
What to collect at intake
Good facts at the start let the attorney spot these issues before filing. Ask the client for, and note:
- Any child support or alimony, whether it is current, and any arrears.
- Tax debts, the years involved, whether returns were filed, and copies of notices.
- Student loans: type, holder and balance.
- Court judgments, fines, restitution orders or pending lawsuits.
- Recent large purchases, cash advances or new credit applications, and the circumstances.
- Any debt connected to a business, a position of trust or an accident.
The guide to documents a debtor must gather covers the paperwork that supports these answers.
Stay inside your role
When a client asks "will this debt be wiped out?", the right response from an assistant is to take careful notes and pass the question to the attorney. Telling a client whether a debt will be discharged is legal advice. We discuss that line in what non-attorney assistants may and may not do and in when a client mentions debt.
Next steps
Attorneys who want help with the preparation side can hire a virtual bankruptcy assistant. Assistants who want to be found by those attorneys can join NAVBA.
This article is general information about bankruptcy practice, not legal advice. Local rules, trustee preferences and state law vary, so confirm current requirements for your jurisdiction.
