The letter N, in my Bankruptcy Alphabet, stands for Nondischargeable. These are the debts that simply don’t go away, even when you get a bankruptcy discharge.
Family support heads the list of nondischargeable debts, at least figuratively. Whether it’s called child support, alimony, maintenance, or a domestic support obligation, the debtor’s obligation to pay on court ordered support survives bankruptcy. That’s the case in every chapter of the Bankruptcy Code.
There’s a different rule about other financial obligations that are created in a divorce. These debts might be equalizing payments for a division of property or an obligation to indemnify your ex from debts to others you are expected to pay. Those obligations are nondischargeable in Chapter 7, but dischargeable in Chapter 13.
Famously, student loans are nondischargeable in bankruptcy, unless you bring an adversary proceeding in the bankruptcy and prove that repayment of the student loan imposes an “undue hardship” on you and your dependents.
Some taxes are nondischargeable: recent income taxes and the trust fund portion of payroll taxes.
Then, there is a group of debts that may survive bankruptcy if the creditor files a non dischargeability action in the bankruptcy and proves that the debt is the result of some listed kinds of “bad behavior” on the debtor’s part:
- conversion, embezzlement,
- breach of fiduciary duty, and
- intentionally inflicted harm
If the creditor can prove that the debt was created by any of these kinds of conduct on the debtor’s part, the debt will survive a discharge in any chapter.
Credit card usage provokes the most nondischargeability litigation. The lender typically claims that the debtor used the card without the intention to repay the charges. Courts vary on how much real evidence the creditor has to offer to prove his contention. That’s why I ask each client about their recent credit card usage; I want to assess whether the credit card company is likely to challenge the discharge of the debt.
The rest of the non dischargeable debts are found in Section 523.
So there you have nondischargeable, brought to you by the letter N.
My friend and bankruptcy attorney Jay Fleischman thinks N is for Naked. He certainly looks at bankruptcy differently.
Image courtesy of takomabibelot.