Bankruptcy Chapter 7 & 13

McDonald Law
Offices PLLC

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On this page:
FAQ Topics
  Stopping Creditors
When, Where & What
  to File

Debts Discharged
Child Support &
  Spousal Maintenance

Spouses & Joint Debts
Listing Creditors
Preference in
  Paying Creditors

Court Meeting
Property Lost
Tax Effect
Secured Debts
Changes &
  Chapter 13 Plan

Missed Plan Payments
Dismissed Cases
Credit after Bankruptcy

Debts Discharged

Can a judgment be discharged?

Yes.  Unless the judgment is based on the kind of debt which would not be discharged (i.e. child support, spousal maintenance, fraud, personal injury resulting from DUI, student loans, etc.), the discharge which you get in bankruptcy will extinguish your personal liability for the debt.

Unfortunately, the discharge of a judgment does not remove the judgment from property to which it might have attached before the discharge.  The judgment cannot be used to collect against you personally, but it may still be used against property which you owned before the discharge.

When a judgment is recorded, it becomes a lien, similar to a mortgage, on property that you own. Even though your personal liability on the judgment will be discharged, the lien will remain on the property. You will not be able to sell the property until the lien is paid or removed, and in some cases the creditor may sell the property to pay the lien. If the property is exempt (i.e. your homesteaded house, or mobile home) that lien can be removed. This is not part of the ordinary bankruptcy procedure. While your bankruptcy is open, you must request your attorney to file a Complaint to Avoid a Judgment Lien. There is an extra charge for this action.  [9-98]

Can student/education loans be discharged?

No, with one exception.  Education loans and benefit overpayments made, insured or guaranteed by the government are not generally discharged in Chapter 7 or Chapter 13.

Educational loans may be discharged only if the court finds that the loan "will impose an undue hardship on the debtor and the debtor's dependents."  [�523(a)(8)(B)]  You must be able to demonstrate that you cannot make payments the loan at the time the case is filed or in the future.

You must apply for the hardship discharge while your case is still open (before the discharge is granted). In Chapter 7 this is usually about 6 months from the date the case is filed. In Chapter 13 the case will be open until after the last plan payment is made (3 to 5 years).

Application for a hardship discharge is not included in the Chapter 7 or Chapter 13 fees and must be requested and paid for after the case has been filed.

What are the requirements to get a "hardship discharge" of an education loan?

Since the bankruptcy code does not specify the exact requirements for a hardship discharge of an education loan,  the courts may apply slightly different standards.   Most courts, including those in Arizona, apply a three part test to discharge educational loans:

  1. Income test.  If you are forced to pay the education loans you will not be able to maintain a "minimal" standard of living for yourself and your dependents.
  2. Duration test.  The financial circumstances which meet the income test are likely to continue for a substantial portion of the repayment period.
  3. Good-faith test.  You must have made a good faith attempt to repay the loans.

In re Pena, 155 F.3d 1108 (Ninth Cir. 1998)

I thought that student loans WERE dischargeable, once they were over 5 years old, but from what event does the five years start? From the original inception date of the loan? From the date those monies were applied (like at the beginning of a semester)? From the date of graduation?

The date that you were looking for was the date that the first payment on the loan was due. Depending upon the kind and conditions of the loan the first payment would often be 6 months after the end of school attendance.

Unfortunately for those seeking to discharge educational loans, this date no longer has any relevance, since educational loans can no longer be discharged in bankruptcy regardless of how old they are. The only basis for discharge is that repayment of the loan will impose an undue hardship upon the debtor and the debtor's dependants.

For cases filed prior to November 5, 1990, educational loans could be discharged in Chapter 7 only if the first payment was due more than 5 years (excluding periods of suspension of payments) before the bankruptcy was filed, but they could be discharge in Chapter 13 without regard to how new or old the loan was. For cases filed after that date, the discharge in Chapter 13 had the same time requirement.

A subsequent change increased this period from 5 to 7 years for both Chapter 7 and 13 cases filed after May 27, 1991.

Another change eliminated the ability to get a discharge because of the age of the educational loan in Chapter 7 and 13 cases filed after October 7, 1998.


Can Social Security (SS/FICA) overpayments be discharged?

Yes.  Ordinary social security overpayments (not based on fraud or misrepresentation) can be discharged in Chapter 7 and Chapter 13.  Under Social Security Program Operations Manual, GN02215.185, 190, 195 & 196, and future benefits will not be reduces as a result of the debt discharged.

What taxes can be discharged?

In order for tax to be discharged ALL of the following must be met:

  1. Returns on which the tax is based must be due more than 3 years before the filing of the bankruptcy;
    Note: Income tax returns are usually due on the April 15 following the end of the tax year, but can be due later if the 15th falls on a weekend, or if the due date was extended.
  2. Returns must have been filed more than 2 year before the bankruptcy is filed; (Unfiled returns are not dischargeable in Chapter 7, but may be in Chapter 13.)
  3. If the tax is from an assessment, must be assessed more than 240 days before bankruptcy is filed.
  4. 941 withholding tax on employees cannot be discharged.

There is an important change if you were in a bankruptcy during any of the time periods.  A  bankruptcy extends the above time periods by the duration of that case plus an additional 6 months.  For example, if you filed a bankruptcy owing taxes, in order to be dischargeable the 3 year period in the first requirement above would be extended by the time that the bankruptcy was open plus an additional 6 months.

If the government imposed a tax lien, the tax lien will not be removed from the property by the discharge of the tax. Exemptions do not protect property from tax liens.

A Chapter 13 plan must pay any tax which is not discharged.

[rev. 5-27-2004]

Can traffic fines be discharged in Bankruptcy?

The government makes the rules, so it shouldn't come as a great surprise that there are a number of special rules that deny the discharge of certain kinds of debt owed to the government.

If you file under Chapter 7, you will still have to pay traffic fines.  Fines, including those imposed for traffic violations, are excepted from discharge in Chapter 7 by Section 523(a)(7).  This section applies only to cases filed under Chapter 7, and not those filed under Chapter 13.

If you file under Chapter 13, you will probably not have to pay the traffic fine, and the state will probably be prohibited from suspending your driver's license because of the fine.  I said probably because the answer is subject to court interpretation of the nature of the fine.

Some fines are not discharged even in Chapter 13.  Section 1328(a)(3) excepts restitution and criminal fines included in a sentence on the conviction of a crime from discharge.  Whether the fines will be discharged in Chapter 13 will depend upon whether the fine rises to the level of a criminal fine included in a sentence.

It appears that courts are likely to determine that traffic fines, even for substantial infractions, do not rise to the level excepting them for discharge in Chapter 13.   For example, in In re Hardenberg, 42 F.3d 986 (6th Cir. Ohio, 1994) the Court of Appeals found that fines imposed on Mr. Hardenberg after his conviction for Driving While Intoxicated were discharged in Chapter 13.  The court also ordered the reinstatement of his driver's license which had been suspended for failure to pay those fines. [2-9-99]

When waiting the 60 days after the 341 meeting for the discharge of my Chapter 7, should I be counting 60 calendar days or 60 work week days (Mon-Fri)?

First, you are to be congratulated in finding

  1. That Bankruptcy Rule 4004(c)(1) directs the court to "forthwith" grant a discharge in a chapter 7 case upon the expiration of the time for objecting to discharge or moving to dismiss the case, and
  2. That Bankruptcy Rule 4004(a) gives creditors until 60 days after the first date set for creditor's meeting to object to discharge, and Bankruptcy Rule 1017(e) gives the same deadline for the Trustee to move to dismiss the case.

[ I shouldn't congratulate you since you are a client and you asked me when the discharge would be entered, but the folks reading the answer to your inquiry didn't know that.]

So, now that you have determined that 60 days after the date first set for your creditor's meeting, you want to know what days to count.  In this case, when the court rules say "days", they really do mean all days, not just Mondays, Tuesdays, Wednesdays, Thursdays and Fridays.  Weekends and holidays are should also be counted in  the calculation.

You are right that "60 days" should be viewed with some suspicion.  If the last day of the 60 day falls on a weekend or a holiday, the deadline day for those objections will be extended to the court's first business day after the holiday or weekend.

Don't expect the court to mail you your discharge on exactly the 61st day after the 341 meeting, either. The Bankruptcy Rule directs the court to grant a discharge "forthwith".  Although the dictionary will tell you that "forthwith" means immediately, it doesn't necessarily mean on the same day.  The court will mail the discharge as soon as the clerks get around to it.  We have found that they tend to be pretty prompt, so you can expect that the court will be mailing the discharge within a few days after the time period has passed, unless a complaint objecting to your discharge or a motion to dismiss your case has been filed.

An additional caveat:  Just because you receive the discharge doesn't mean the case is over or that the discharge is final.  The Trustee may continue to administer the case for months after the discharge has been granted.  If you fail to provide the Trustee with information or property which he has requested, he can ask the court to revoke the discharge.  The court could also revoke the discharge if a complaint objecting to discharge, or a motion to dismiss had been filed before the deadline. [3-23-99]

If an employee falls down at work is placed on disability but is found not "disabled" and then charged with "fraud," is this debt nondischargeable?

The discharge of a debt may be denied in Chapter 7 if the Bankruptcy court determines that it was the result of fraud. [� 523(a)(2)]  Determining what is and is not fraud may be a little more complex than what it first seems.

First, the creditor has to object to the discharge within  60 Days After � 341 Meeting.  This objection to discharge must be made even if another court has found that the debtor has committed fraud, since the requirements to prove fraud may have been different in that court.  This is especially true if the fraud has been established in a "default" proceeding where the debtor did not appear, and there was no presentation of evidence.

Second, the creditor must prove that there has been actual fraud.  The Ninth Circuit Court of Appeals has determined that to prove actual fraud, a creditor must establish each of the following elements:

  1. that the debtor made the representations;
  2. that at the time he knew they were false;
  3. that he made them with the intention and purpose of deceiving the creditor
  4. that the creditor relied on such representations, and 
  5. that the creditor sustained the alleged loss and damage as a result of the representations.

[In re Eashai, 87 F.3d 1082 (9th Cir. Cal., Jul 2, 1996)]

If another court has made a determination of fraud using the elements required by the bankruptcy court, for example in a criminal trial, the bankruptcy court may make a summary finding of fraud without having to have a trial on the issues.  [In re Guerrerio, 143 B.R. 605 (Bankr.S.D.N.Y., Aug 18, 1992)]

The example you gave involved possible fraud in obtaining disability benefits.  A more common objection to discharge is when a debtor runs up charges on his cards before filing a bankruptcy.  In those cases, courts have given additional guidelines which may be considered in establishing the intent of the debtor:

  1. The length of time between the charges made and the filing of bankruptcy;
  2. Whether or not an attorney has been consulted concerning the filing of bankruptcy before the charges were made;
  3. The number of charges made;
  4. The amount of the charges;
  5. The financial condition of the debtor at the time the charges are made;
  6. Whether the charges were above the credit limit of the account;
  7. Whether the debtor made multiple charges on the same day;
  8. Whether or not the debtor was employed;
  9. The debtor's prospects for employment;
  10. Financial sophistication of the debtor;
  11. Whether there was a sudden change in the debtor's buying habits;  and
  12. Whether the purchases were made for luxuries or necessities.
[In re Dougherty, 84 B.R. at 657 (citing In re Faulk, 69 B.R. 743, 757  (Bankr.N.D.Ind.1986))]

The rules are different in Chapter 13.  In Chapter 13 a debt incurred as the result of fraud may still be discharged as long as the debtor has filed the Chapter 13 in good faith.


Under Chapter 13 in Arizona and in the Federal codes, can you tell me what the code numbers are and where to find them that states someone who has been found guilty of a discrimination charge cannot have the judgment set aside and also if you know of the codes that say malicious intent is also not covered by bankruptcy.

A brief summary of debt not discharged is contained on our Debt Not Discharged page.  Chapter 13 provides a broader discharge, sometimes called a "super discharge," than is available under Chapter 7.  The kinds of debt not discharged in Chapter 13 is listed in 11 USC � 1328.  Paragraph (a)(3) of that section excepts debt "for restitution, or a criminal fine, included in a sentence on the debtor's conviction of a crime" from a Chapter 13 discharge.

Although you have used the word "guilty" which suggest restitution for some criminal activity which would not be discharged, your description suggests some kind of civil judgment which would more than likely be discharged in Chapter 13.  Unfortunately, without more specific information I can give no more detailed answer.

If you are in a Chapter 13 Bankruptcy, and during the time that you were under bankruptcy you acquired more debt (payday loan companies), can the payday loan companies sue you?

Unfortunately, yes.

The protection given by the court in Chapter 13 applies only to debt which is incurred before the commencement of your case.  Money that you borrowed after your case was filed would not come under the protection of the court.  Under most circumstances, creditors lend money after the case is filed can take ordinary collection actions which may include filing suit against you.  [7-14-2004]

These questions and answers are not intended as legal advice or as a statement of the law.  They are intended to suggest areas which you should discuss with your attorney.

Although Bankruptcy law is Federal code applicable to all states, the way it is applied may depend upon state law and varying practices of the courts, trustees, and even attorneys. As a result, some of these answers are directly applicable only in cases filed by our office in Arizona.

This page was last revised: 09/18/04