Filing for bankruptcy does not automatically wipe every debt off your ledger. Debts that cannot be discharged in bankruptcy include child support, alimony, most unpaid taxes, and any debt you simply forget to list on your paperwork. Understanding which obligations survive the process is essential before you decide whether bankruptcy is the right move.
Chapter 7 and Chapter 13: Two Different Paths
Chapter 7 and Chapter 13 are the two forms of personal bankruptcy most people file. Under Chapter 7, a court appointed trustee sells off your nonexempt assets and distributes the proceeds to creditors. Certain property is protected, typically a portion of home equity, your car, work tools, clothing, pensions and Social Security benefits. Anything else of real value, a second vehicle, a boat, investment accounts, collectibles, can be sold to satisfy debts.
According to the Administrative Office of the U.S. Courts, debts in a Chapter 7 case are usually discharged about four months after the petition is filed. Bankruptcy runs through federal courts under federal law, though some exemption rules shift depending on the state.
Chapter 13 works differently. Instead of liquidating assets, you agree to repay a set portion of your debts over three to five years while keeping property you would otherwise lose. Once you complete the plan, whatever remains is discharged. Because Chapter 7 requires passing a means test that proves you cannot realistically repay your debts, people with fewer financial resources tend to gravitate toward it. If you fail that test, Chapter 13 may be your only route.
Nineteen Categories the Bankruptcy Code Protects From Discharge
The U.S. Bankruptcy Code spells out 19 categories of debt that cannot be discharged in Chapter 7, Chapter 13, or Chapter 12 (the specialized chapter for family farms and fishing operations). The details shift slightly between chapters, but these are the debts that show up again and again:
- Alimony and child support obligations
- Certain unpaid taxes, including tax liens, though some older federal, state and local tax debts may qualify for discharge
- Debts tied to willful and malicious injury to a person or their property (in Chapter 13, this exception applies only to injuries to people, not property damage)
- Debts from death or injury caused by driving under the influence of alcohol or drugs
- Any debt you fail to list in your bankruptcy filing
File Chapter 7 and you will still owe condo or co op association fees, plus any debts left over from a previous bankruptcy that were never discharged. Homeowners and car owners are not necessarily out of luck, though. You can typically keep a car by reaffirming the loan and staying current on payments, and you can usually keep your home as long as you continue paying the mortgage and your equity does not exceed what state and federal exemptions allow.
| Feature | Chapter 7 | Chapter 13 |
|---|---|---|
| Basic structure | Liquidation of nonexempt assets | Repayment plan over three to five years |
| Eligibility test | Must pass a means test | Available when Chapter 7 is not |
| Typical discharge timing | About four months after filing | After completing the repayment plan |
| Asset treatment | Nonexempt property sold to pay creditors | Debtor keeps property while making payments |
| Credit report impact | Stays on report 10 years | Stays on report seven years |
Why Income Tax Debt Is So Hard to Erase
Income tax debt sits in a strange middle zone. It is not automatically excluded like child support, but discharging it requires petitioning the bankruptcy court for a special exemption and making a compelling case for relief. Anyone carrying tax debt they cannot pay off might get more traction talking to a tax attorney before filing anything.
The IRS itself offers alternatives outside of bankruptcy. An offer in compromise lets the agency accept less than the full amount owed. There is also the option of an installment agreement, which spreads payments out over a longer stretch of time. Creditors, for their part, can challenge the discharge of certain debts in court, or ask the judge to lift the automatic stay that normally halts collection efforts while a case is pending.
Student loans used to fall into this same difficult category. Borrowers had to file a separate lawsuit, called an adversary proceeding, arguing that repayment caused