Debts That Cannot Be Discharged in Bankruptcy

Collectively, Americans owe more than $1 trillion in student loan debt. Unfortunately, that debt generally cannot be discharged in a bankruptcy case. The same is true for:

• Child support
• Back taxes owed
• Other balances that are considered to be priority debts

Debts that cannot be discharged in bankruptcy are known as priority debts. Contact a New Jersey bankruptcy lawyer for more information.

What Is a Priority Debt?

A priority debt is one that is given top billing in a bankruptcy case because it involves owing money to a state or federal government agency. In some cases, a priority debt cannot be discharged because it wouldn’t be good public policy to allow this to happen. For instance, child support and alimony payments are generally considered to be priority debts.

This is because failing to provide for your spouse or your child after a divorce may result in that person unnecessarily relying on public assistance to meet his or her basic needs. Your bankruptcy legal counsel could explain further why such debts may not be discharged and what you can do to get these debt balances under control.

Examples of Priority Debts

Personal Injury Judgments

If you were found to be liable for the injury or death of another person, you could be responsible for paying damages even after filing for bankruptcy. This is generally true in the event that you caused the injury or death while impaired on drugs or alcohol. However, it is possible that filing for bankruptcy could put a temporary end to wage garnishment or otherwise provide more time to work out a suitable payment plan.

Back Taxes Owed
If you owe any type of back taxes to the government, these will generally be collected even if other debts are discharged in bankruptcy. The government may be able to garnish wages, take possession of state or federal tax refunds or deny public benefits until the debt is repaid. If you owe income, business or sales taxes, you could also have your bank accounts or other assets seized and liquidated for nonpayment.

Student Loan Balances
As a general rule, you can only have your student loan balances discharged if paying them off constitutes a hardship. Having a low annual income is generally not enough. However, a hardship may occur if you are disabled and unable to find work in your chosen field or at all. It may also happen if you can show that paying a student loan would prohibit you from paying for necessities such as food or shelter. Generally speaking, a court may order you to look into forbearance programs or to enroll in an income-based repayment program before granting a discharge.

Does It Matter What Type of Bankruptcy You File For?

In cases involving priority debts, you will likely still be required to make payments on those balances even after a bankruptcy case ends. This is generally true whether you file for Chapter 7 or Chapter 13 protection. It is also generally true whether the bankruptcy is the result of personal or business debts. By speaking with a bankruptcy attorney, you can learn more about priority debts and your obligation to repay them after seeking protection from creditors.

Bankruptcy May Still Eliminate Other Debts

Although it can’t wipe out priority debts, filing for bankruptcy can get rid of credit card or other similar types of balances owed to creditors. Therefore, you may still benefit from filing as it can free up cash to pay alimony or student loans. In some cases, interest will no longer accrue while a bankruptcy case is open, and filing may be enough to get some leniency or flexibility from your creditors. For instance, you may be put on an extended payment plan or have penalties and interest waived.

If you are in need of bankruptcy help, contact the New Jersey bankruptcy attorneys at Neuner and Ventura. We can be reached at (856) 596-2828 during normal business hours. You can also visit us at the Willow Ridge Executive Office Park in Marlton, New Jersey.