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cannot be eliminated and can even be collected by creditors from the debtor’s estate after the debtor dies! In other words, debtors are stuck with the debt until is completely paid off. Let’s look at the kinds of debt you can and can’t discharge:
Dischargeable Debt (can be eliminated)
Non-Dischargeable Debt (can’t be eliminated) • child support and alimony payments • criminal fines and orders of restitution • most income taxes (particularly if the debtor never filed their tax return.) • fraudulently obtained loans • debts resulting from "willful and malicious" harm • student loans • debts not listed in the bankruptcy petition • mortgages and liens (personal responsibility for the loan can be discharged, but the creditor retains the right to the collateral)
• consumer debt (credit card debt fees and late charges) • medical bills • personal loans
• utility bills • unpaid rent
Reflect on Learning: Do you see any pattern in the types of debt that are non-dischargeable? Family or social responsibilities? Debts attributable to crime or fraud? Can you list types of debt that cannot be eliminated in bankruptcy? Answer: student loans, child and spousal support, income taxes, criminal fines and penalties, debts not listed, loans obtained by fraud, the secured portion of a mortgage. IV. Exempt vs. Nonexempt Property Just like debt, not all property was created equal. In a Chapter 7, bankruptcy, one of the first things a trustee does is investigate and identify everything the debtor owns to figure out what can be sold to satisfy the claims of the creditors and what property, by law, may be kept by the debtor so they have what they need to get back on their feet. It’s of no benefit to any society to make the consequences of bankruptcy so onerous that families are left with nothing or reduced to poverty. No one can make a fresh start that way! Therefore, property that is necessary for basic living is exempt liquidation . Things the debtor owns that are not necessary for basic living are called nonexempt property . In a Chapter 7 bankruptcy, the debtor turns over all nonexempt property to the trustee who liquidates (sells) it to pay the creditors. Let’s look at the kinds of property that can and can't be liquidated to pay creditors: PRODUCT PREVIEW
Exempt Property (can’t be sold by trustee)
Nonexempt Property (can be sold by trustee)
• car or motor vehicle (up to a certain value) • necessary clothes • necessary household goods and furnishings • household appliances • jewelry up to about $1500
• a vacation home • a second (or third) car • collections of value like stamps or coins • investments such as stocks, bonds and other accounts • sports equipment • jewelry • electronics • designer clothing that is not a necessity for living (Sorry, your Gucci purse will be sold by the trustee.)
• Pensions and Retirement Accounts up to about $1,200,000 • Some equity in their home, which is called the Homestead Exemption • Things they need for their job, like carpentry tools, dental or tech equipment
Chapter 18 | Resolving Insolvency 356
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