Discharging your Debt

How Can Bankruptcy Help Me Discharge My Debts?

A bankruptcy discharge relieves a debtor from personal liability for certain debts and therefore, the debtor no longer has the legal obligation to pay any of the debts which have been discharged. A bankruptcy discharge permanently stops the debtor’s creditors from pursuing any efforts to collect against the discharged debts.

Unless there is pending litigation which involves objections from creditors, the debtor generally receives an automatic discharge. The bankruptcy court clerk mails a copy of the order of discharge to all creditors, the U.S. trustee, the trustee in the case, and the trustee’s attorney, if one exists. In general, this notification tells creditors that the debts owed to them have been discharged and not to make any attempts to collect on the discharged debts. Creditors who fail to comply with the notification by continuing collection efforts could face punitive measures.

Not all debts can be discharged and vary under each chapter of the Bankruptcy Code. Typically, unsecured debt such as credit card debt and other unpaid obligations including medical bills and utility bills are most commonly discharged under bankuptcy.

A chapter 13 bankruptcy case offers a marginly broader discharge of debts available to a debtor than in a chapter 7. Debts typically dischargeable in a chapter 13, but not in chapter 7, include those:

  • incurred to pay non-dischargeable tax obligations
  • for willful and malicious injury to property
  • arising from property settlements in divorce or separation proceedings

Ordinarily, a chapter 13 discharge takes place only after all court-approved, scheduled payments in the repayment plan are completed. However, under very limited circumstances is it possible to request from the court, a “hardship discharge” even though the debtor has not made all payments as required by the plan.

Non-dischargeable  Debts in Chapter 7 vs. Chapter 13

Type of Debts Chapter 7 Chapter 13
Income Taxes Ask an attorney Ask an attorney
Employment taxes Not dischargeable unless barred by the ten-year statute of limitations. Same as Chapter 7 and Also must be paid in full under the Chapter 13 plan.
Loans to pay non-dischargeable taxes Not dischargeable Dischargeable unless borrowed fraudulently
Debts from fraud Not dischargeable Not dischargeable
Welfare and unemployment benefits wrongfully received Not dischargeable if benefits received fraudulently.  Even if dischargeable, may be deducted from future benefit payments. Not dischargeable if benefits received fraudulently.  Even if dischargeable, may be deducted from future benefit payments.
Real and personal property taxes Not dischargeable if assessed against the property owner rather than just the property and were incurred less than one year before bankruptcy. Same as Chapter 7 and must be paid in full under the Chapter 13 plan.
Claims for willful and malicious conduct. Not dischargeable. Dischargeable except for claims for personal injuries assessed by a court or administrative agency.
Claims for theft or embezzlement. Not dischargeable. Not dischargeable.
Criminal fines and criminal restitution. Not dischargeable Not dischargeable
Noncriminal restitution Dischargeable unless restitution is considered to be a fine. Dischargeable unless willful conduct causing personal injury or conduct was fraudulent or involved theft or embezzlement.
Noncriminal fines and penalties (other than tax penalties) Not dischargeable Dischargeable, but non-payment may result in criminal prosecution.
Personal Injury claims from drunk driving, boating or flying Not dischargeable. Not dischargeable, and claims for drunk driving and boating must be paid in full under a Chapter 13 plan (priority claims).  Claims for drunk flying are non-dischargeable, but do not have to be paid in full under the plan.
Marital property divisions. Not dischargeable. Dischargeable unless fraud or some other intentional misconduct involved.
Marital and domestic obligations. Not dischargeable. Not dischargeable and must be paid in full under the Chapter 13 plan.
Student Loans Not discharged unless undue hardship can be proved. Not discharged unless undue hardship can be proved.
Motor vehicle tickets and fines. Not dischargeable. Dischargeable if offense was a minor infraction, such as a parking ticket or equipment violation.  But local authorities may give you grief for wiping them out.  Non-dischargeable where the conduct was criminal (for example, driving with a suspended license)
Pension Loans Not dischargeable. Discharged in Chapter 13, but the amount you owe can still be deducted from your pension account.
Unlisted debts May be dischargeable in a no-asset case. Not dischargeable.

Call 480-755-8000 to speak with our Arizona bankruptcy attorney today for immediate help.