Non-Dischargeable Debts in Bankruptcy – Part 1
Some Debts Can’t Be Discharged in Bankruptcy
While most debts can be relatively easily eliminated, some are non-dischargeable in bankruptcy. Some of these exceptions apply regardless of what kind of bankruptcy you file, others are treated differently depending on whether you file Chapter 13 or Chapter 7.
Child Support Non-Dischargeable in Bankruptcy
One kind of debt that cannot be simply eliminated is a domestic support obligation, such as child or spousal support. While a Chapter 7 bankruptcy will not eliminate this obligation, Chapter 13 is often a great way of dealing with a past due child support obligation. Chapter 13 will enable you to pay the back balance over five years and interest-free.
You are required to describe any domestic support owing at the time of filing even though you aren’t eliminating it. Moreover, the bankruptcy trustee is obligated under the bankruptcy code to notify the party who receives the support and the appropriate child support enforcement agency, normally Arizona, of the bankruptcy filing. Like any other creditor, the party who is the payee under the domestic support obligation will get written notices at the time of both the bankruptcy filing and discharge.
While Chapter 13 is a great vehicle for catching up on past due child and spousal support. Falling behind during the pendency of your case can result in a quick dismissal or refusal of discharge if the creditor makes it an issue. Do not fall behind on this obligation during your chapter 13 bankruptcy.
Criminal Fines and Restitution Non-Dischargeable in Bankruptcy
As you might suspect, restitution obligations and fines imposed in criminal matters are non-dischargeable debt in either Chapter 7 or Chapter 13 Bankruptcy. Moreover, civil fines and penalties owed to a governmental unit are not dischargeable in Chapter 7 provided that they were imposed for the benefit of the government and must be punitive in nature rather than to compensate the government for a financial loss.
The rules for discharge are looser in Chapter 13 where many run-of-the-mill tickets, as well as civil penalties and fines, can be eliminated. Arizona drivers are often pleasantly surprised to find out that they will be getting their licenses back immediately after years of suspension because we will be eliminating the fines and penalties in the Chapter 13 case.
Driving Under the Influence Non-Dischargeable in Bankruptcy
While the bankruptcy laws generally allow you to eliminate accident-related claims you may owe to an injured person in their entirety, you can never discharge any debts related to driving under the influence. This is true for both Chapter 7 and Chapter 13 and applies to debts related to both injury and death.
Post-Petition HOA Fees
Not all HOA fees can be discharged in bankruptcy. First, don’t expect to walk away from HOA fees owing prior to filing outright if you are keeping the property. Past due HOA arrears can, however, be paid off through a Chapter 13 Plan at a slow manageable pace. What if you aren’t keeping the house or have already left it?
Pre-petition HOA fees can be easily discharged in bankruptcy. Post-Petition HOA fees are not going anyway. You may be walking away from the house but the post-petition HOA fees will continue to accrue until there is an actual foreclosure sale. If you have already left the home this can be annoying. After all, you aren’t getting any benefit out of the house and you are still paying the HOAs. If, however, you are letting go of the house but haven’t done so yet, you may want to consider (with the advice of counsel) staying in the property until the foreclosure sale. After all, you want to get some benefit from your HOA fees.
One real worry with HOA fees and the pre-petition/post-petition distinction is what if the HOA imposes a massive assessment, say, to redo all the roofs and paint all the units. This is something that you will really want to discuss with counsel.
All things being equal if you sense a big assessment is coming around the bend and you anticipate filing Chapter 7, you want to wait to file your Chapter 7 until after the assessment has been made or you could end up getting stuck with a big post-bankruptcy bill. As they say, forewarned is forearmed. If you have any questions about non-dischargeable debts, please set an appointment with us at Phoenix Fresh Start Bankruptcy Attorneys. Stay tuned for the next installment of non-dischargeable debts.