Debts That Are Typically Exempt from Personal Bankruptcy Filings

Bankruptcy Chapter 7 is shown on the conceptual business photo.
Andrii Dodonov / Getty Images/iStockphoto

The goal of declaring bankruptcy varies, but usually involves the dissolution of burdensome unsecured debt (as in Chapter 7 bankruptcy) or debt restructuring or repayment (as in Chapter 11 or Chapter 13 bankruptcy filings).

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However, some debts can’t be removed regardless of the type of bankruptcy you file.

According to federal courts, from a general standpoint, there are a few non dischargeable debts you can’t clear from your record — such as:

  • Certain types of tax claims.
  • Debts not set forth by the debtor on the lists and schedules the debtor must file with the court.
  • Debts for spousal or child support or alimony.
  • Debts for willful and malicious injuries to person or property.
  • Debts to governmental units for fines and penalties (as well as debts for most government funded or guaranteed educational loans, or benefit overpayments).
  • Most government-funded educational loans or benefit overpayments.
  • Debts owed to certain tax-advantaged retirement plans.
  • Debts for certain condominium or cooperative housing fees.

Student loan debt can be discharged in rare instances. Michelle Bass, a consumer bankruptcy attorney, told CNBC: “It’s really difficult to obtain full discharge of student loans. You have to prove that your circumstances will never improve… and that being forced to repay them would be an undue hardship on you.”

Debts for items purchased within 90 days of filing — or debt resulting from embezzlement, larceny, or breach of fiduciary duty — are also unlikely to be discharged. If a filer fails to follow the rules and procedures, or if they’ve received a discharge in another case within a certain time frame, they may be denied a discharge for these reasons.

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Regarding bankruptcy and its effect on credit scores, Bass stated: “Whether they [the party going bankrupt] file Chapter 7 or 13, their credit is going to take a hit… But most clients say it starts improving right away after a Chapter 7 discharge, and in Chapter 13, their credit starts to improve six to 12 months after filing.”

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A Chapter 7 bankruptcy can stay on your credit file for 10 years, and a Chapter 13 bankruptcy for 7 years, per Capital One. With this in mind, it may be wise to speak to a financial advisor or attorney specializing in such matters before making the commitment to file.

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