Debts Not Affected by Discharge


Chapter 7 bankruptcy does not discharge every kind of debt. The Bankruptcy Code (in Section 523) sets out a laundry list of different types of obligations that are not dischargeable. The best way to understand the likely difference between the dischargeable debts (the ones you are “released from”) and the non-dischargeable debts (the ones the you are stuck with) is to think of acts committed by the debtor which amount to intentional wrongs (intentional torts). Generally, intentional acts of wrongdoing, such as fraud, are not dischargeable.


Other types of debts which are not going to be dischargeable are debts that have a very important social aspect to them, separate and apart from the monetary amount which the obligation represents. These include debts such as taxes, student loans, alimony, spouse support and child support.

You can attach a dollar amount to these debts, but they also have a social element that is extremely important to society at large. The public policy of every state is that persons must support their children. They must support spouses when ordered to do so by a court. They must pay their taxes and they must pay back their student loans.

So the Bankruptcy Code very clearly provides that most of those kinds of societal obligations are not going to be discharged. In addition, Chapter 7 does not discharge debts arising from a divorce or marital separation agreement (for example a property division or equalization judgment).


Taxes owed to the United States or any state, county or other governmental entities are normally nondischargeable. However, income taxes will be dischargedif all the following criteria are met:

  • The taxes are more than three years old at the time the Bankruptcy was filed. (The three-year period begins to run from the time the returns were due, plus any periods of extension);
  • If the return was not filed on time, more than two years has expired since the return was filed;
  • If there was an assessment, more than 240 days have expired from the date of the assessment before the bankruptcy is filed;
  • There has been no fraud.

LEON’S TIP: Get accurate information about your tax debts and important dates. If you intend to discharge taxes with your bankruptcy filing, we recommend that you obtain a complete history of your tax obligations for each specific year in question from the IRS and consult a tax professional before filing the bankruptcy. To get your Federal IRS tax history, call the IRS at 800-829-1040 and ask them for a report called MFTRA-X. Tell them you want the MFTRA-X for each year for which you owe taxes. They will mail you the reports; and they might even fax them if you ask them nicely. Also note that a bankruptcy discharge does not automatically remove any filed or recorded tax lien on any property which you own.


Student loans are generally not dischargeable if they are guaranteed by or partly funded by a government entity or a nonprofit institution. This includes any student loan that carries payments which are qualified under the IRS Code for income tax deductibility.

However, under some circumstances these loans may be discharged on a showing that they would impose an undue hardship on the debtor and dependents of the debtor. Unfortunately, to make this showing of undue hardship, there is a process that is extremely difficult for most debtors. The process involves filing a lawsuit against the creditor and in this lawsuit the debtor has the burden of proof. Such suits are very complicated and time consuming to pursue. They require the assistance of legal counsel which can be very expensive.


Court decisions that find undue hardship for the debtor have been extremely rare in the reported case decisions. The reported cases that grant such a hardship typically do so for individuals that suffer from some type of very severe permanent and total disability or some sort of permanent disability that drastically restricts the ability of the debtor to earn more than a subsistence level of income. The courts require a finding that the debtor has proven each ofthe following three elements of undue hardship:

  1. That the debtor cannot maintain, based upon current income and expenses, a “minimal” standard of living for himself and his dependents if compelled to repay the student loans; and
  2. That additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
  3. That the debtor has made good faith efforts to repay the student loans.

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