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Criminal Debts Not Discharged in Bankruptcy
Bankruptcy can’t discharge—permanently write off—criminal debts, but it can still help in indirect but potentially game-changing ways.
If filing a bankruptcy case does not discharge criminal debts, how could it possibly help?
In a number of practical ways, bankruptcy enables you to focus on your criminal defense and to deal with any potential fallout. If you’ve been charged with a significant crime you need to make that your highest priority, financially and emotionally. Here’s how filing bankruptcy can help you do that.
1) Discharge Your Other Debts
If you’ve been charged with a serious crime, you have to figure out how to pay for a good criminal attorney and for the other costs of your defense. Considering what’s at stake, you need to consider not paying all or most of your creditors. It may make sense to sell some of your assets and/or even get early access to any retirement funds.
Either in addition to or instead of these tactics, often the fastest way to reduce your debts and quickly improve your cash flow is by filing a Chapter 7 "straight bankruptcy." Then you can immediately stop paying the debts you intend to discharge. The discharge itself usually happens within only about 4 months after your case is filed, freeing you of your debts.
Debts Not Discharged in Chapter 7 Bankruptcy
Most debts can be discharged—permanently eliminated—in bankruptcy. Here are the exceptions.
The vast majority of debts are “discharged”—legally written off—when you file a “straight bankruptcy” Chapter 7 case.
All Debts Discharged Unless Fits an Exception
Bankruptcy law strongly states that as long as you go through the process appropriately your debts will be discharged. That includes all debts unless you have any debts that are on a limited list of the kinds of debts that are not discharged.
Debts that MAY not be Discharged vs. WILL not be Discharged
These exceptions to discharge are of two categories: 1) debts which MAY not be discharged if the creditor objects and succeeds in that objection, and 2) debts which WILL not discharged even without any objection raised by the creditor.
Creditor Must Object to Stop Discharge
The Discharge of Debts in Bankruptcy
In your goal of getting a fresh financial start, your most important tool is the "discharge"--the permanent legal elimination of your debts.
Whether you file a Chapter 7 “straight bankruptcy” or Chapter 13 “adjustment of debts,” they are both designed to finish with a discharge of some or all of your debts. A discharge gives you permanent relief from your debts. It does so by making it illegal for your creditors to take any further collection action on them.
Chapter 7
Most Chapter 7 cases finish in less than 4 months with a court order discharging all or most of your debts. Sometimes you have to give up some asset(s) in return, but not usually.
Chapter 13
Chapter 13 cases take a lot longer and usually (but not always) require paying at least something to all your creditors. Chapter 13 requires proposing and getting approval of a formal plan of payments lasting usually 3 to 5 years. Your successful completion of this payment plan results in the discharge of all or most of your remaining debts.
The 3 Kinds of Debts
Your debts can be “secured,” “priority” or “general unsecured.” How bankruptcy treats your debts depends on which kind they are.
The purpose of bankruptcy is to deal with your debts. You want to know:
- Will you still owe anything to anybody after filing bankruptcy?
- What happens to debts you want to keep like a vehicle loan or home mortgage?
- How about special debts like income taxes and child support?
To answer these you have to know the 3 kinds of debts:
- secured
- priority
- general unsecured
Secured Debts
All of your debts are either secured by something you own or are not.
Usually it’s quite straightforward. If you have a vehicle loan, the vehicle’s title shows your lender as the lienholder. That lien on the title, plus what you agreed to in the documents you signed with that lender, makes the loan secured by the vehicle. So the lender has certain rights as a secured creditor related to your vehicle. It has the right to repossess your vehicle if you fail to make payments. It can likely “force-place” insurance and make you pay for it if you let your insurance lapse.
Bankruptcy in the U.S. Constitution and Statutes
Bankruptcy is federal law. The U.S. Constitution has said so from the beginning. Find the Bankruptcy Code in Title 11 of the U.S. Code.
If you’re considering bankruptcy and are trying to read up on it, this may help make sense of it.
The U.S. Constitution
The Constitution gave Congress the power “to establish... uniform laws on the subject of bankruptcies throughout the United States.” (Article 1, Section 8, Clause 4.) This particular power is near the top of a long list of legislative powers the Constitution granted to Congress.
Why Bankruptcy is in the Constitution
Bankruptcy may seem like a minor issue in the grand scheme of setting up a new nation. But making bankruptcy a federal responsibility instead of a state one actually went to the heart of what the Constitutional Convention of 1787 was trying to address.
Bankruptcy--A Moral Choice
When is it moral to break your promises to pay your debts?
We Humans Are Moral Creatures
Your decision about whether to file bankruptcy could sensibly be just a weighing of its economic costs and benefits.
But there’s more to life than dollars and cents. Whether in the front of our minds or nagging us in the back of our minds is the very human question: “Is it the right thing to do?”
Our important life choices are often moral ones. They are choices between doing what’s right and doing what’s wrong.
When deciding about bankruptcy you could skip that part of the decision-making process. You could make it a purely economic decision. But there’s a good chance that will leave you at least vaguely unsettled. You’ll likely feel good about the decision only after you believe in your head and heart that filing bankruptcy really was the right thing to do.
Bankruptcy Made Simple
Bankruptcy gives you options for taking charge of your financial life.
What is Bankruptcy?
Bankruptcy is a legal option for dealing with your debts.
It enables you to face your financial life in an honest and realistic way. It allows you to put past problems and mistakes behind you, focus your energies on the present, and set goals for the future.
Bankruptcy is a personal choice that may be right for you or may not. But if you are financially struggling, it’s wise to find out about it.
Bankruptcy Options
For most consumers there are two main, quite different bankruptcy options—Chapter 7 “straight bankruptcy” and Chapter 13 “adjustment of debts of an individual.”
There’s also the far less common Chapter 11 “reorganization” and Chapter 12 “adjustment of debts of a family farmer or fisherman.”
For a sense of how much each of these Chapters is used, out of close to 845,000 total bankruptcies filed in the United States in 2015, about 535,000 were Chapter 7 cases, about 302,000 were Chapter 13’s, only about 7,250 were Chapter 11s and about 400 were Chapter 12s.
What Is Size of Your Family for the "Means Test"?
You must use the right “number of people in your household” to qualify for Chapter 7. It’s not always obvious. Our last blog post last week was about which state to use for the “means test” when you have connections to more than one state. The way you answer that question can be crucial for passing the “means test” and qualifying for Chapter 7 “straight bankruptcy.” Same thing with the size of your family, as today’s blog post explains.The Easiest Way to Pass the “Means Test”
As we’ve been saying, the easiest way to pass the ‘means test’ is for your family’s income to be no more than the published median family income amount for your family size in your state. Even if your income is higher, you might be able to pass the “means test” through a much more complicated and riskier method. But for today’s purposes we’re focusing on this most straightforward income-comparison method.The Larger the Family the Larger the Median Family Income
What Is Your State for the "Means Test"?
You must use the right “state in which you live” to qualify for Chapter 7. It’s not always obvious.
Our last blog post a couple days ago was about the unique definition for “income” as used in the “means test.” Understanding this definition and applying it to your advantage can be crucial for passing the “means test” and qualifying for Chapter 7 “straight bankruptcy.” (See that most recent blog post to calculate your own annual “income” amount.)
As we said, the “easiest way to pass the ‘means test’ is for your family ‘income’ to be no greater than the median family income amount for your family size in your state.” And we provided a link to a table of all the median family annual income amounts (effective starting April 1, 2016) for every state and family size.
What is Considered "Income" for the Chapter 7 "Means Test"
“Income” is not what you think it is—it’s much broader than usual and fixates on the 6 full calendar months before your bankruptcy filing.
Our last blog post a couple days ago was about an upcoming cost of living adjustment of median family income amounts. This adjustment is going in effect for bankruptcy cases filed on and after April 1, 2016. (See Section 101(39A) of the Bankruptcy Code.) These median family income amounts are important because they can determine whether you can pass the “means test” and qualify for a Chapter 7 “straight bankruptcy” instead of a Chapter 13 “adjustment of debts.”
That’s important because a consumer Chapter 7 case usually take only 3 or 4 months to finish. It usually does not require you to pay anything to most of your creditors. In contrast a Chapter 13 case usually takes 3 to 5 years, and requires you to pay all you can afford to your creditors throughout that period of time.
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