What Debt Can Be Included in Chapter 7 or Chapter 13 Bankruptcy?
Bankruptcy is a legal proceeding that allows a debtor to get out of excessive debt and gain a fresh start financially. Bankruptcy is governed by federal law. Indiana law determines only what assets a debtor may keep upon the filing of his or her bankruptcy petition.
There are three types of bankruptcy; however, one is generally for businesses only. The two main types for individuals are Chapter 7 and Chapter 13, which are described below.
Dischargeable and Non-Dischargeable Debts
Debts in bankruptcy are dischargeable or non-dischargeable. Most debts are dischargeable under Chapter 7 bankruptcy. This means that the creditor no longer needs to be paid back, and the debt is deemed canceled. Certain debts are not dischargeable, including, but not limited to, the following:
- Taxes assessed within three years of the filing, which remain unpaid
- Debts incurred by the use of false financial statements or other false pretenses
- Debts that the debtor fails to list on his or her petition
- Debts that arise from fraud or from the misuse of funds when the debtor was acting as a fiduciary
- Alimony and child support debts
- Any debt incurred from willful or malicious conduct
- Fines and penalties
- Education loans unless you can prove an undue hardship
- Debts for luxury goods or services over $500 when incurred within 90 days of the filing of bankruptcy
- Debts for cash advances in excess of $750 on credit cards incurred within 70 days of bankruptcy
- Debts arising from a judgment incurred from drunk driving; and withholding taxes due from the debtor as an officer of a company
In addition, an individual debtor may be denied a discharge of all debts for any of the following reasons: hiding or destroying assets to hinder; delaying or defrauding a creditor; failing to keep financial records or hiding or destroying financial records; refusing to comply with an order of the bankruptcy court; having filed for Chapter 7 bankruptcy and receiving a discharge of debts within the preceding eight years. Therefore, it is important that you be totally honest and complete in preparing your responses in the questionnaire that will be provided to you at your free initial consultation. Only then can you be assured that your debts will be discharged through bankruptcy.