Exceptions of Debt

Exceptions of Debt

There are several categories of debt which are individually accepted from discharge under certain circumstances. These exceptions constitute a basis for objecting to your bankruptcy, in part, or automatic exceptions of debt which you will continue to owe despite the fact that you have filed bankruptcy. These exceptions of debt are grouped into several categories, and are discussed below.

The first category of debt which the bankruptcy law does not wipe out is most state, local and federal taxes.

Income taxes which were due at least three years prior to the bankruptcy’s petition filing date and which were filed at least two years prior to the filing date may be dischargeable, however, this requires an additional, separate procedure and fee in order for this to be accomplished.

It’s important to understand, however, that most taxes which are owed prior to filing bankruptcy will not be discharged. They will still be due and owing after the bankruptcy.

The next category of debt which bankruptcy law does not wipe out is property, credit or service that is obtained by fraud. For instance, selling someone the Brooklyn Bridge when you really do not own it, or filling out a false financial statement to induce someone or some institution to extend credit based on false information, such as you own the all the Beatles’ guitars or the Eiffel Tower. Another example of debt considered to be incurred by fraud is purchasing at least $1000 worth of luxury goods, or taking at least a $1000 cash advance, on a particular credit card within 60 days of filing a bankruptcy. These types of debt are considered to be made with knowledge that you were in financial trouble, or that you knew you had no ability to repay them at the time that the charges were made. Any debt in this category is not wiped out in bankruptcy, however, the creditor must file an adversary proceeding (which is a lawsuit inside your bankruptcy), which makes your bankruptcy a contested matter, and for which to defend will require an additional, separate fee.

We will discuss more exceptions of debt in our next few articles, so make sure to come back for more!

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By: Joel S. Treuhaft, Esquire