Chapter 7 Bankruptcy

Obligations That Are Automatically Not Dischargeable In A Bankruptcy Proceeding.

Some obligations are not dischargeable regardless of whether the affected creditor takes an active interest in the case; Congress has provided that such obligations are automatically nondischargeable. The examples of obligations which are automatically nondischargeable are probably not altogether surprising: the trust fund portion of an employer's payroll taxes, recent income taxes, student loans (with some exceptions), past and future alimony and child support, liability created in a driving under the influence incident, unpaid fines and penalties such as traffic tickets, and criminal restitution awards.

Obligations That Are Potentially Not Dischargeable In A Bankruptcy Proceeding.

Examples of obligations which are potentially nondischargeable all share one thing in common: improper conduct on the part of the debtor. Perhaps the most common example of improper conduct in a bankruptcy context is credit card abuse. If a creditor can convince the bankruptcy judge that the debtor incurred or increased a debt, including a credit card, in the weeks and months prior to the filing of the bankruptcy petition knowing that he or she was never going to in fact repay the obligation and therefore lacking the intention to repay the obligation at the time the charges were incurred, the portion of the creditor's balance that was charged in those weeks and months prior to the filing will be deemed nondischargeable. Other examples of obligations that are potentially nondischargeable include those incurred using false financial information, those incurred as a result of a breach of a fiduciary duty, those incurred as a result of embezzlement, and those incurred as a result of willful and malicious injury to another or another's property.

Dischargeability Of Family Law Obligations.

Not only are past and future alimony and child support obligations automatically nondischargeable, but other obligations arising out of the division of marital community assets and liabilities may in some instances also be deemed nondischargeable. The general rule has always been that one spouse cannot discharge spousal support and/or child support obligations in bankruptcy. Obligations created in a marital dissolution proceeding in order to equalize the division of marital community assets and liabilities were traditionally dischargeable. For example, say the ex-husband is awarded his business by the marital dissolution court. Assume the business is worth $500,000. The ex-wife is awarded the marital residence, but it is only worth $300,000. In order to equalize the division, ex-husband is ordered to pay ex-wife $100,000.

Traditionally, the ex-husband could discharge the $100,000 obligation to the ex-wife in his bankruptcy case. However, in the 1990s Congress amended the Bankruptcy Code to include an additional exception to the general rule that obligations are discharged in bankruptcy. On a case by case basis, presented with a timely challenge to dischargeability by the nonfiling spouse, the bankruptcy court will determine whether the debtor ought to be able to discharge his or her nonsupport-based obligation to the nonfiling spouse.

Creditors are given a window of opportunity within which to seek a determination that the debtor's obligation to the creditor ought not be discharged as a result of wrongful conduct or that as a result of a pervasive fraud upon the bankruptcy court, such as failure to disclose all assets and/or truthfully respond to all questions posed, the debtor ought not receive a discharge of any of his or her obligations.

If you would like more information, or would like to discuss your situation with a California Chapter 7 bankruptcy attorney, please contact us.

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