“Nondischargeable” debts are debts that cannot be wiped out in a bankruptcy case.
1. Educational Loans
All educational loans are nondischargeable.
The bankruptcy code does provide an exception and allows a debtor to discharge their educational loans if they can show “undue hardship.” However, the courts have narrowly construed this meaning so that a very persuasive showing must be made. To make matters worse, the procedure for eliminating student loans is very time consuming for the attorney and requires an adversary proceeding and typically litigation. As a result, a person could quite easily spend as much money fighting to discharge their student loan as is actually owed on the student loans, with no guarantee of success.
2. Domestic Support Obligations, Alimony, Child-support.
The policy reason for such a rule is quite obvious. We don’t want to allow a person who has neglected her court-ordered child-support or alimony to simply file bankruptcy and walk away from her obligations. For this reason, any debt to an ex-spouse through a divorce decree or other court order is nondischargeable.
However, a person who is delinquent in alimony or child support may find help in a chapter 13 case where she is allowed to pay the back-support over 5 years at zero interest. Therefore, if a person was delinquent $25,000 in back child-support she could do a chapter 13 repayment of $500 per month for 60 months and her back-support would be paid, but all her other debts would be wiped out.
3. Recent IRS debts.
In order to discharge IRS debts you must meet a four-part test.
a) The taxes must have been last due more than 3 years ago.
b) The tax return must have been last filed more than 2 years ago.
c) The tax debt was not assessed in the last 240 days, or not assessed at all.
d) The IRS has not filed a federal tax lien.
In cases where the IRS has filed a federal tax lien, the taxes can still be discharged in a chapter 13 case but you will have to pay a portion of it back depending on what assets you own. This is what I meant in an earlier part of this section by “cramming-down” the tax lien.
4. City or Municipal Fines, traffic tickets, etc.
Government fines are non-dischargeable. The exception is when the fine is to compensate the government for a monetary loss or
5. Fraudulent transactions (purchases that are made with the intent to discharge in bankruptcy).