Nondischargeable debt is money owed by a consumer that cannot be terminated through a bankruptcy process. This debt type varies in bankruptcy courts based on the filing choice, either chapter 7 or 13. The main nondischargeable debt types are student loans, taxes, and alimony; although these debts cannot be discharged, it is possible to have the balances reduced through a bankruptcy attorney. Consumers should also note that any debts not listed on an official bankruptcy filing will need to be repaid as stipulated by the creditor.
Chapter 7 bankruptcy allows a debtor to terminate all bills that do not fall under the nondischargeable debt type; however, there are more nondischargeable debt rules that apply to this filing choice. In contrast, chapter 13 bankruptcy involves the creation of a repayment plan to the creditors for all, or a portion of, the debt. As a result of the repayment process, less debt is considered nondischargeable, such as back taxes.
Both chapters of bankruptcy require debtors to repay student loans. The government does not want these loans to default since future students in need will be adversely affected if the funds were lost to the bankruptcy system. In addition, alimony cannot be discharged since it is a debt that was already judged in a court of law to be directed to an ex-spouse. Taxes — although dischargeable under chapter 13 — are nondischargeable debt under chapter 7, so that the government does not lose this supply of funds.
It is possible to reduce some non-dischargeable debt through an attorney's assistance. For example, certain debts, especially taxes, can be extremely large and impractical to payback in a reasonable amount of time. In response, the court system allows reductions in some cases. The judge will decide on a sensible payback amount once he or she confers with the creditor. Many government entities understand that reducing a debt may encourage timely payments on a consistent basis, as opposed to spending excessive money to collect on a defaulted bill.
A debtor should read his or her court papers carefully before declaring bankruptcy. Any debts not listed for discharge will have to be repaid as noted by the creditors. Since consumers can declare bankruptcy several times in their lifetime, some debtors may try to discharge a debt incurred prior to a previous bankruptcy. Debtors cannot discharge old bills in this manner since the previous debt is now considered nondischargeable; the court will see this discrepancy, which can negatively impact the current bankruptcy proceeding.