The goal of a bankruptcy case is to get the discharge. This is true whether your bankruptcy is in Brooklyn, Queens, Manhattan, Long Island or anywhere else in New York or the rest of the U.S. And it’s the same whether it’s a Chapter 7, Chapter 11 or Chapter 13 bankruptcy.
The discharge is what gives you the “clean slate” or the “fresh start.” It means you are no longer obligated to pay the unpaid portion of unsecured debts such as credit card debt, and that those creditors are no longer permitted to seek payment from you.
However, there are also certain types of debts that are “non-dischargeable.” That is, you still have to pay them in full even after your bankruptcy case is complete. Here’s a list of some of those non-dischargeable debts:
1. Any debts that you failed to include on your list of debts for your bankruptcy filing.
2. Debts resulting from criminal activity (e.g., fines levied by the court) as well as debts resulting from death or injury caused intentionally by you or caused while under the influence of drugs or alcohol.
3. Student Loans. There’s been discussion in Congress (as I noted in a recent post) of a more lenient standard for discharging student loans. But until you hear otherwise, you still have to pay them back regardless of any bankruptcy filing. The only exception is “undue hardship,” with heavy emphasis on hardship.
4. Tax liabilities incurred within the previous 3 years. And that goes for federal, state and municipal taxes.
5. Debts that were fraudulently incurred. The classic example is where you max out your credit cards prior to a bankruptcy filing (which I discussed in a previous post) under the mistaken belief that you’ll be able to just wipe away all of that debt once you file. Fraudulent debts also include any debts you incurred where you lied or misrepresented yourself, e.g., to get a loan, as well as any attempt to pay off taxes (non-dischargeable debt) with a credit card (which would otherwise normally be considered dischargeable debt).
6. Alimony and court-ordered child support.
7. Secured debt, i.e., your mortgage, your car or debt incurred that is backed by collateral. Technically, these are dischargeable, but you can’t discharge the lien or security interest the creditor has in the collateral. (“Debts are dischargeable, but liens survive.”) So for all intent and purpose, you need to pay these back in full or the secured creditor has the right to the collateral (e.g., the house or car) via the bankruptcy process.
On this topic, it’s worth noting that there has been discussion in Congress on a “mortgage cramdown bill” that would, if passed, empower a bankruptcy judge to change the terms of the loan or reduce the principle of the loan as part of the bankruptcy process. As with student loans, however, until you hear otherwise, assume that mortgages must be paid in full and cannot be discharged in a bankruptcy case.
To learn more about the bankruptcy process, please feel free to contact me for a free initial consultation. You can get all of your questions answered about what you can keep and what you can’t as well as which of Chapter 7, Chapter 11 or Chapter 13 would be the right option for you.
Go to www.nybankruptcy.net to learn more about Rosenberg Musso & Weiner LLP and/or to set up a free consultation.
Bankruptcy is often a counter-intuitive process. Some things that seem innocuous or insignificant may be anything but. In particular, there are some common mistakes that people make in perfectly good faith. If you’re thinking of filing for bankruptcy in New York, here are a few things to be aware of.
I’m pleased to share that I’ve been invited by the New York State Bar to speak on bankruptcy issues in connection with the “2009 Handling the Tough Issues in a Plaintiff’s Personal Injury Case” program on November 13, 2009. The program will be held at the Hotel Pennsylvania in Manhattan.
