The discharge order in a bankruptcy case does not specify which debts are being discharged. A dischargeable debt that was not challenged (e.g., a credit card balance) is presumed to be discharged, and a nondischargeable debt (e.g., a student loan) is presumed to remain collectible. A debt from any category can be challenged for dischargeability by the creditor for special reasons, sometimes after the bankruptcy case is closed. A debtor can also start a proceeding to determine the dischargeability of a debt in order to settle conflicts that may arise after the bankruptcy case.
The common types of debts that are discharged are:
- Credit cards
- Personal loans
- Medical bills
- Liability on repossessed cars and foreclosed houses
- Student loans
- Taxes (but not all of them)
- Child support or alimony
A major exception to dischargeability is based on some kind of fraud. A creditor can challenge the dischargeability of a debt if it was incurred by false pretenses, a false representation, actual fraud, or a false written statement with certain conditions. It could also be challenged if it was incurred by fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny. The first problem for the creditor making the challenge is deciding what type of fraud was involved and how the circumstances fit into all the necessary legal elements. The second problem is actually proving that all these elements (which may come from state law as well as federal law) are met.
If you choose to file for bankruptcy protection, be sure you understand which debts you are discharging, which debts you are not discharging, and if there are any risks of uncertainty.