If you’re struggling to pay your debts, Chapter 7 bankruptcy can help you get a fresh start. However, there are some debts that cannot be discharged using this form of bankruptcy. More importantly, though, there are factors that can cause normally dischargeable debt to survive the bankruptcy. Here are three of those factors and what can be done about them.
Incurring Debt Within a Restricted Timeframe
One reason you may be required to repay debt that would normally be discharged is if you incur it within 60 to 90 days before filing bankruptcy. While the court mainly focuses on credit cards, since that is the most common way people acquire new debt, any type of financial liability would qualify. For instance, if you get a payday loan during that time period, you may still be required to pay it back after your case ends.
However, the loan amount and what you spent the money on will dictate whether the debt can be written off. If you spend over $650 on luxury goods and services (i.e. items not necessary for the support and maintenance of you and your dependents) or obtain over $925 in cash advances from one credit card company, you'll have to repay the money.
The best way to avoid this issue is to watch your spending in the days leading up to your case. If you purchased items that could be considered a luxury and want to ensure the debt is wiped out, you should wait until the time limit passes before filing for bankruptcy.
It's important to note, though, the debt will only become non-dischargeable if the creditor successfully files a dispute. If the creditor doesn't say anything about the debt—or files the dispute too late—the debt will be discharged as normal.
Using Dischargeable Debts to Pay Non-Dischargeable Ones
Dischargeable debt used to pay non-dischargeable debt will also survive bankruptcy. For instance, student loans are generally not dischargeable. So some people will come up with a scheme to pay their student loans off with their credit cards and then file bankruptcy to eliminate the credit card debt.
The problem is the bankruptcy court has already anticipated this type of behavior, and so any portion of the dischargeable debt (e.g. credit cards and personal loans) used to pay the non-dischargeable debt (e.g. student loans and child support) will also become non-dischargeable.
Again, it's the creditor's job to catch this and file a dispute, but it's best to not do it. In addition to being made to pay the money back, you may be sued for fraud if you attempt this financial maneuver. The creditor could make a case you intended to defraud it out of its money, and you may suffer a variety of legal consequences—including criminal charges—as a result.
Engage in Criminal Behavior
A third reason the court may bar you from discharging debt that's would typically be eliminated is if you incurred it while engaging in certain criminal behavior. Debt obtained via fraud is non-dischargeable, and so are personal injury awards you were ordered to pay as a result of driving while intoxicated. Court fines, penalties, and restitution are also typically non-dischargeable.
Whether or not these debts are dischargeable is mandated by law, and the trustee in the case will check for these issues when handling your case. While the debt may survive a Chapter 7 bankruptcy, many can typically be discharged in a Chapter 13 case, which will give you more time to pay the debts off. Speak with an expert to help you figure out what type of bankruptcy is best for you.
There are many pitfalls and challenges you will run into when filing for bankruptcy. Contact the Law Office of Cowan & Brady for help getting around these issues to successfully obtain the fresh financial start you want.