Do I Have To List Every Single Debt I Owe When I File For Bankruptcy, Or Can I Leave Some Out?

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As an introduction to the answer, suppose you are a creditor. Charlie owes you a bunch of money, and he also owes Jim a bunch of money. If Charlie lists you but not Jim when he files for bankruptcy, what’s going to happen? Most likely, Charlie will eventually pay Jim in full; he will not, however, pay you in full because you were listed on his documents, and when Charlie gets a discharge, his debt to you will be erased. As a creditor, you might be thinking, “Hey, that’s not fair. Why does Jim get paid and I don’t?”

Now, let’s say you’re the debtor, and you have a debt to Charlie and a debt to Jim. Do you have to list them both? Well, the one that you list is going to see that you didn’t list the other (if you don’t list the other) and say, “That’s not fair.” In the interest of fairness, you have to list everyone to whom you owe money. You don’t get to pick and choose in this game. You can’t say, “Well, this guy is my buddy, so I’m going to go ahead and pay him. I’ll keep him out of the bankruptcy. But you’re a jerk. I’m going to list you so that my debt to you goes away.” You are required by law to list everyone to whom you owe money on the day that you file the petition.

If you decide after getting your discharge and having your case closed that you’d like to pay back the money you used to owe to a creditor anyway, the Bankruptcy Code has a provision that says you are not prohibited from doing so. What is prohibited—because you got that discharge—is the creditor coming after you to try to collect on that debt.

Are Debts Incurred To Pay Nondischargeable Tax Obligations Dischargeable In The Different Chapters Of Bankruptcy?

Let’s start with Chapter 7. Section 523(a) of the Bankruptcy Code contains a list of debts that are not dischargeable in a Chapter 7. Among those are debts that you incurred to pay the nondischargeable tax debt. That type of debt is not dischargeable in a Chapter 7. In other words, you can’t decide, “Well, I know I can’t get rid of it, but I’ll just pop that tax debt on my Visa card to make it a credit card debt that I can discharge in the bankruptcy.” That’s not how it works.

The list of nondischargeable debts in Chapter 11 for the individual debtor is the same as the list of nondischargeable debts in Chapter 7. Chapter 13, however, has a shorter list for those who complete the plan. (If you get a hardship discharge in Chapter 13, then the list of nondischargeable debts is the same as in Chapter 7.) Some of the things that are listed as nondischargeable debts in Chapter 7 are not included in Chapter 13. Among those are debts that you incur to pay a tax, so you can discharge those debts in a Chapter 13, meaning you don’t have to pay them in full (they get paid at whatever percentage the general unsecured get paid), provided you complete the plan. If you don’t complete the plan, then they’re not going to be dischargeable.

Interestingly enough, there are a couple of others that are dischargeable in Chapter 13 that are not dischargeable in Chapter 7. For that reason, we call the Chapter 13 discharge a super discharge. In fact, fraud debts were, at one point, dischargeable in Chapter 13 though they’ve never been dischargeable in Chapter 7. That changed in 2005, so fraud debt is no longer dischargeable (which is fortunate for the creditor). All that is to say that yes, you can discharge debts incurred to pay a nondischargeable tax in a Chapter 13, but you cannot do so in any other chapter.

Are Debts Arising From Property Settlements in Divorce or Separation Proceedings Dischargeable in a Bankruptcy?

It depends on the chapter. There are two types of debts to a spouse or a former spouse that are not dischargeable in Chapter 7 or Chapter 11. One is domestic support, meaning child support or alimony, and the other is a debt to a spouse or a former spouse that is not domestic support that was incurred in the process of a separation agreement or a divorce.

Domestic support is not dischargeable in any type of bankruptcy. You owe child support or alimony no matter what. But if you have a debt to a spouse or a former spouse that was incurred as part of a separation agreement or a divorce decree that is not domestic support, it is dischargeable in a Chapter 13, provided you complete the plan — that’s part of that Chapter 13 super discharge. You’ll end up paying some of it through the Chapter 13 plan, and as long as you complete the plan, the unpaid portion will then be discharged. If you get a hardship discharge, however, then you’re back in the Chapter 7 territory of nondischargeable debts.

For more information on Tax Debts in California, a free 20 Minute Phone Strategy Session is your best next step. Get the information and legal answers you are seeking by calling (562) 777-9159 today.