Specific Kinds of Debt

Credit Card Debts

Most credit card debt will be fully discharged in bankruptcy. Credit Card companies will occasionally object to the discharge by claiming fraud on the part of the debtor or the court may find “constructive fraud” if your purchases or cash advances exceed $1,075 within 60 days of filing. Actual fraud is harder to prove, simply put the creditor must show that you used your credit card and had no intention of repaying the debt.

Secured Debts in Chapter 7

The lien interest that a secured creditor has in the collateral is not affected by the filing of a Chapter 7 bankruptcy. While the case is pending the creditor is barred from collection activity, such as foreclosure or repossession of the property. The debtor has four  possible options:

Redemption: The debtor may always redeem the property, that is he may pay the creditor the value of the collateral. Redemption is rarely practical because it requires cash.

Reaffirmation: The second option is to reaffirm the debt. Essentially  the debtor and the creditor make a new agreement and the debtor waives the right to have the debt discharged. If the debtor is current on the obligation, this can be a viable alternative. If the debtor is in default, the creditor may prefer to take the collateral. The creditor can do this at the conclusion of the case or sooner, by successfully filing a motion for relief from the automatic stay.

Surrender: The debtor may simply offer to let the creditor take the collateral. If the trustee agrees, then the creditor takes the collateral but has little other recourse if the property is worth less than the debt. An “undersecured” creditor becomes an unsecured creditor for the deficiency amount.

Retain: Debtors who are current with the secured creditor may choose to keep making the required payments and the creditors may be satisfied with getting payments. If at a later date, the debtor decides to stop making payments the creditor has only one recourse, to take the collateral or foreclose.

Secured Debt in Chapter 13

Lien Stripping: In the Chapter 13 plan the debtor can propose to alter the terms of a secured loan if the loan is not a mortgage on the debtor's primary residence. The debtor may reduce the loan to the value of the collateral. The debtor may also reduce  the interest rate on these loans to market rate interest.

Taxes: The dischargeability of taxes is too complex to be summarized in a single paragraph. Here are some general rules:

Income taxes which were due less than three years prior to filing are not discharged. Taxes older that this may be discharged, but not if there is a tax lien or warrant filed and there is equity in the property. If you have not filed your return, the tax will not be discharged.

Taxes which you are obliged to collect for the government (sales tax and some
employment taxes) are not dischargeable.

Real property taxes are a lien on the property and are therefore not discharged.

Student Loans: For the most part, student loan debt, whether taken by the student or the parents, is not dischargeable. The only way the loan can discharged is by proving that repayment of the loan will create a substantial hardship on the debtor and his family. The courts will require the debtor to show that he cannot maintain a minimally adequate standard of living and repay the loan, and that conditions are unlikely to improve.