Nondischargeable Laws & Bankruptcy
- Student loans cannot be discharged through any United States bankruptcy proceeding, unless the debtor can prove a true hardship. Examples of circumstances accepted by the bankruptcy court include a serious disability or the college's closure. The good news for debtors affected by the inability to pay student loans is that the government can only garnish 10 percent of a person's wages to repay a student loan. In addition to wage garnishment, the government can use tax refunds to repay toward a defaulted student loan balance.
- Child support cannot be discharged under a bankruptcy proceeding, even if the past due amount is very large. It is impossible to liquidate any current or past due child support obligation in a bankruptcy case. Also, be aware that many states will prosecute unpaid child support as a criminal case, which could potentially lead to jail time.
- Alimony and other debts incurred to support a former spouse or legally recognized live-in companion cannot be liquidated due to bankruptcy. Payment arrangements for these debts must be made to prevent the affected party from taking civil legal action, such as filing a lawsuit.
- Most federal, state, and local taxes cannot be discharged through bankruptcy. There are a few exceptions, depending on the age of the debt and if a return was appropriately filed. Some back taxes that are more than three years old may be eligible for bankruptcy liquidation, but only if the debtor filed his or her tax return.
- Any fines for criminal activity, including court-ordered restitution to a crime victim, cannot be discharged under any bankruptcy proceeding. Failure to make acceptable arrangements to pay such debts could create possible criminal consequences depending on the nature of your original case.
- Any debt incurred through theft or fraud is ineligible to be included in a bankruptcy case. For example, someone who lies on a credit application could be deemed unfit for bankruptcy. In addition, purchases of expensive goods right before a bankruptcy filing could be constituted as fraud, and thus not dischargeable in the case.