As a creditor, you are likely intimately familiar with the discouraging list of dischargeable debts under the U.S. Bankruptcy Code. Unfortunately, these laws permit debtors to escape liability on certain debt obligations, provided certain criteria are met. Currently, debtors may avoid paying any of the following debts through bankruptcy discharge:
- Credit card obligations
- Personal loans
- Outstanding utility bills
- Medical debt
Other debts, such as those secured by collateral, may be discharged in certain scenarios - accompanied by a foreclosure or repossession of the property. However, notwithstanding the seemingly generous list of dischargeable debts found in the Code, there are certain debts that will essentially follow the debtor to the grave - regardless of any extenuating mitigating circumstances.
Non-dischargeable Debts: Fraud & Misrepresentation
Top priority, non-dischargeable debts include obligations like alimony/spousal support, child support arrears, and certain categories of taxes. However, as a creditor, your debts are more than likely tied up in transactions including unsecured loans - which are often the first on the chopping block when it comes to discharge. Still, any debts that are incurred as a result of fraud or misrepresentation are not subject to discharge rules, which could prove exceptionally helpful to any creditor having been defrauded into offering an extension of credit.
Under 11 U.S. Code § 523, a debtor cannot discharge his debt obligation if he obtained money, property, services or an extension of credit by any of the following means:
- False pretenses
- False representation of creditworthiness
- Actual fraud
- Use of a materially false written statement respecting the debtor's financial condition
- Embezzlement or larceny (theft)
Of course, a creditor will be required to submit evidence to support a finding of fraud or misrepresentation, making it all the more important to maintain accurate and thorough records of each lending transaction.
Other Non-Dischargeable Debts
There are a number of other lesser-known categories of non-dischargeable debt, which may be helpful to a creditor seeking recovery of an outstanding obligation or liability. First, any debt that is incurred as a result of the willful and malicious injury of another person is not dischargeable in bankruptcy.
This exception includes both physical and financial injuries, generally applies to outstanding judgements entered against a defendant facing this sort of liability. As a related matter, a debtor is also precluded from discharging debts spurning from an alcohol-related DUI or personal injury, as well as any order for restitution entered by a judge in a civil or criminal matter.
As well, the Code prohibits a debtor from attempting to discharge a non-dischargeable debt from a prior bankruptcy proceeding. This provision helps to protect creditors from the relentless attempts some debtors make to avoid liability on a particular obligation, and can help ensure a claim is eventually paid off.
Contact a Ft. Lauderdale Creditors' Rights Law Firm Today!
If you are facing a difficult situation and believe you may lose pending outstanding debts to bankruptcy, please contact creditors' rights attorney Michael L. Feinstein today: 954-767-9662.