Nondischargeable Debts in Sacramento Bankruptcy
Not all debts can be discharged in bankruptcy. Section 523(a) of the bankruptcy code lists debts excepted from discharge in bankruptcy. These debts include certain tax debts, student loans, fraudulently incurred debts, and domestic support obligations among others. The list of nondischargeable debts in Section 523(a) of the bankruptcy code can be grouped into two categories: debts nondischargeable for public policy reasons and debts nondischargeable due to the debtor’s bad acts. Student loans and domestic support obligations cannot be discharged in bankruptcy for public policy reasons. Congress codified the nondischargeability of student loans to prevent college graduates from opportunistically discharging student loan debt while retaining the benefit of their education. Hence, the nondischargeability of student loans is not triggered by the debtor’s actions but is rather rooted in a calculated policy decision by legislators. In contrast, the nondischargeability of fraudulently incurred debts exemplifies the category of nondischargeable debts triggered by the debtor’s bad acts. In essence, for a debt to be nondischargeable in bankruptcy due to fraud the debtor must have engaged in the bad act of making representations the debtor knew to be false with the intent of deceiving the creditor. Absent the debtor’s bad act the debt would be dischargeable. Lastly, some debts are presumed to be nondischargeable due to the property obtained and the time frame in which the debt was incurred. For instance, certain credit card cash advances before bankruptcy and pre-bankruptcy luxury goods and services are presumed to be nondischargeable in bankruptcy.
Nondischargeable (§523) vs. Denial of Discharge (§727)
The difference between nondischargeable debts under Section 523 of the bankruptcy code and a denial of discharge under Section 727 can be confusing. Nondischargeable debts under Section 523 of the bankruptcy code are specifically excepted from the discharge that can still eliminate other debts. For instance, if the debtor has 5 dischargeable debts and 1 nondischargeable debt the debtor may receive a discharge of the 5 debts but will not receive a discharge of the 1 debt. After discharge the creditor of the 1 nondischargeable debt may pursue collection efforts. In contrast, if the debtor is denied a discharge under Section 727 no debts will be discharged. Hence, a denial of discharge under Section 727 applies to all debts as opposed to the nondischargeability of specific debts under Section 523.
Income taxes can be discharged in bankruptcy under certain circumstances. Find out whether your income taxes can be discharged in bankruptcy.