FUNDAMENTALS OF BANKRUPTCY FOR LENDERS
Chapter 7 Bankruptcy
3. NON-DISCHARGEABLE DEBTS
a. The general policy of the Bankruptcy Code is to discharge the debtor from most debts unless a creditor or party in interest objects to the whole discharge or files a Complaint to Determine the Dischargeability of a particular debt.
b. A successful Objection to Discharge is based on fraudulent or wrongful conduct during or immediately preceding the bankruptcy and prevents the debtor from discharging any debts.
c. A Complaint to Determine the Dischargeability of Debt seeks to prevent the debtor from discharging a specific debt on the basis that the debt was incurred through wrongful action by the debtor.
d. For policy reasons, Congress has directed that certain types of debts automatically be non-dischargeable. For example, most taxes, child and spousal support, debts that result from an injury caused by driving-while-intoxicated, and student loans are non-dischargeable.
e. Many debts are not automatically non-dischargeable. A debt can be declared non-dischargeable by the Court if the creditor files suit and proves to the Bankruptcy Court that the debt was incurred through the means listed below. If the creditor does not act, however, these debts will be discharged. They include:
(1) Property, services, or an extension, renewal or refinancing of credit to the extent obtained by false pretenses, false representation, or actual fraud (other than a false Financial Statement).
(2) Property, services, or an extension, renewal or refinancing of credit to the extent obtained by the use of a statement in writing (including a credit application):
(a) That is materially false,
(b) Respecting the debtor or an insider's financial condition,
(c) On which the creditor reasonably relied, and
(d) That the debtor published with intent to deceive.
(3) Purchase of luxury goods exceeding $1,225.00 ($500.00 under BAPACPA) made within 60 days (90 days under BAPACPA) of filing.
(4) Cash advances under an open-end credit plan in excess of $1,225.00 ($750.00 under BAPACPA) taken within 60 days (70 days under BAPACPA) of filing.
(5) Embezzlement or larceny.
(6) Fraud or defalcation, while acting in a fiduciary capacity.
(7) Willful or malicious injury to another entity or property of another entity (this could apply to the damage to or destruction of collateral securing a loan).
(8) BAPACPA provides that the following type of debt will no longer be dischargeable in a Chapter 7:
(a) Property Settlement Agreements;
(b) Debts incurred to pay a nondischargeable tax to a Federal or State governmental unit;
(c) Debts incurred to pay fines or penalties imposed under Federal Election Law; and
(d) Certain loans owed to pension, profit sharing, stock bonus, and other retirement plans.
For more information or to request a presentation regarding BAPCPA, please contact Spotts Fain attorneys, Robert H. Chappell, III (804) 697-2025 or Jennifer J. West (804) 697-2094.
