Discharge (Bankruptcy Exceptions): Your Essential Guide

Filing for bankruptcy is one of the most consequential financial decisions an individual can make, primarily because of the discharge. A bankruptcy discharge is a court order that releases the debtor from personal liability for most of their debts, permanently prohibiting creditors from taking collection action on those obligations. This is the essence of the “fresh start” policy. However, this right is not absolute. For public policy reasons and to prevent abuse, the U.S. Bankruptcy Code carves out specific types of debt that cannot be eliminated in the process. These are known as exceptions to discharge, detailed primarily in 11 U.S.C. § 523(a).

The Major Categories of Non-Dischargeable Debt

Section 523(a) of the Bankruptcy Code lists nearly 20 categories of debt that are exempt from discharge in a Chapter 7, Chapter 11, or Chapter 12 case (and most survive a Chapter 13 discharge as well, though Chapter 13 has a broader “super-discharge”). The most common and significant exceptions include:

1. Taxes and Customs Duties (11 U.S.C. § 523(a)(1))

Not all tax debt is non-dischargeable, but recent income taxes, trust fund taxes (like payroll taxes), and property taxes that became due within a specific period before filing generally survive bankruptcy. For income tax to be dischargeable, several time-based tests related to the tax return’s due date, the date the return was filed, and the date of assessment must typically be met.

2. Domestic Support Obligations (11 U.S.C. § 523(a)(5))

Debts for alimony, maintenance, or support of a spouse, former spouse, or child are universally non-dischargeable in any chapter of bankruptcy. This exception reflects the strong public policy interest in ensuring family members are supported.

3. Debts Obtained by Fraud or False Pretenses (11 U.S.C. § 523(a)(2))

This exception is critical and is often heavily litigated. It applies to debts for money, property, services, or credit obtained by:

• False pretenses, a false representation, or actual fraud.
• Use of a materially false written statement regarding the debtor’s financial condition.

It also includes “presumptive fraud,” where certain consumer debts are presumed fraudulent if they involve luxury goods or services over a specified amount (currently $800) owed to a single creditor within 90 days before filing, or cash advances over a specified amount (currently $1,100) within 70 days before filing. These amounts are subject to periodic adjustment.

4. Willful and Malicious Injury (11 U.S.C. § 523(a)(6))

This exception prevents the discharge of debts for injury to another person or their property that was willful and malicious. The Supreme Court has clarified that “willful” means the debtor must have intended the consequences of the act, not just the act itself. It covers intentional torts like assault, battery, or conversion, and also debts for personal injury or death caused by the debtor’s operation of a motor vehicle while intoxicated (11 U.S.C. § 523(a)(9)).

5. Fiduciary Fraud, Embezzlement, and Larceny (11 U.S.C. § 523(a)(4))

Debts arising from the debtor’s fraud or defalcation while acting in a fiduciary capacity, or from embezzlement or larceny, cannot be discharged. Bankruptcy law has a narrow definition of “fiduciary,” generally requiring an express or technical trust.

6. Student Loans (11 U.S.C. § 523(a)(8))

Qualified student loan obligations are non-dischargeable unless the debtor proves that repayment would impose an “undue hardship” on the debtor and their dependents. Proving undue hardship requires filing a separate lawsuit, known as an adversary proceeding, and typically involves a stringent three-part test (like the Brunner test).

Procedural Implications: The Creditor’s Burden

For most of the exceptions related to debtor misconduct—specifically fraud (a)(2), fiduciary defalcation (a)(4), and willful and malicious injury (a)(6)—the debt is presumed dischargeable unless the creditor takes an affirmative, timely legal action. The creditor must file an Adversary Proceeding (a separate lawsuit within the bankruptcy case) and must prove, by a preponderance of the evidence, that the debt falls under the exception.

Summary: Key Takeaways on Discharge Exceptions

1. A Fresh Start is Not a Clean Slate: While bankruptcy offers immense relief, debts arising from public policy concerns (like support and certain taxes) or debtor misconduct (like fraud and intentional injury) are generally non-dischargeable under 11 U.S.C. § 523(a).
2. Creditors Must Act Quickly: For exceptions based on fraud, fiduciary misconduct, and willful injury, the creditor must file a formal complaint (adversary proceeding) within a strict 60-day deadline following the first date set for the Meeting of Creditors.
3. Student Loans Require “Undue Hardship”: To discharge student loans, the debtor must file a separate action and successfully prove “undue hardship,” which is a difficult legal standard to meet.
4. Secured Debts Remain: Importantly, the discharge eliminates personal liability but does not automatically extinguish a valid lien on property (e.g., a mortgage or car loan) that was not successfully avoided during the case.

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Frequently Asked Questions (FAQ)

Q1: Are all debts incurred by fraud automatically non-dischargeable?

A: No. For a debt to be non-dischargeable due to fraud (11 U.S.C. § 523(a)(2), (a)(4), or (a)(6)), the creditor must file a timely lawsuit called an adversary proceeding in the bankruptcy court and prove the elements of the exception by a preponderance of the evidence. If the creditor misses the deadline, the debt will be discharged, even if it was technically incurred by fraud.

Q2: Can I discharge any part of my tax debt in Chapter 7 bankruptcy?

A: Yes, certain tax debts can be discharged. Generally, tax debt must meet a three-part test: the tax return was due more than three years before filing, the return was filed more than two years before filing, and the tax was assessed more than 240 days before filing. Tax debts that are the result of a fraudulent return or an attempt to willfully evade tax are never dischargeable.

Q3: What does “willful and malicious injury” mean in bankruptcy?

A: Under 11 U.S.C. § 523(a)(6), “willful and malicious injury” means the debtor committed an intentional tort where they desired or believed the injury was substantially certain to result from their actions. The US Supreme Court confirmed that this exception is limited to intentional injury; a debt resulting from a merely intentional act that unintentionally led to injury is dischargeable.

Q4: Are Homeowners Association (HOA) fees dischargeable?

A: HOA or condominium fees that came due before the bankruptcy filing date are typically dischargeable. However, fees or assessments that become due and payable after the bankruptcy order for relief are non-dischargeable, as long as the debtor maintains a legal or equitable interest in the property.

Q5: Do exceptions to discharge apply to business bankruptcies?

A: The exceptions listed in 11 U.S.C. § 523(a) apply exclusively to individual debtors. Corporations and partnerships that file for Chapter 7 do not receive a discharge at all, and a business filing Chapter 11 typically receives a comprehensive discharge (except in specific individual cases like Subchapter V).

Disclaimer and AI Generation Notice

The information provided in this blog post is generated by an artificial intelligence model trained on legal texts, and is for informational purposes only. It is not intended as, and should not be relied upon as, legal advice. Bankruptcy law, especially concerning exceptions to discharge, is highly complex and depends heavily on the specific facts of each case, relevant case law, and the interpretation of the US Bankruptcy Code (Title 11 of the United States Code). You should always consult with a qualified Legal Expert to discuss the dischargeability of any specific debt.

Consult a Legal Expert Today

Navigating the complex interplay of discharge and its exceptions requires professional guidance. Do not attempt to determine the status of your debts or legal claims without professional assistance. Contact a qualified Legal Expert to ensure your rights and financial future are protected.

Bankruptcy Discharge, Non-Dischargeable Debt, 11 U.S.C. § 523, Chapter 7, Chapter 13, Fraud Exception, Domestic Support Obligations, Student Loans, Willful and Malicious Injury, Tax Debt, Fiduciary Duty, Presumptive Fraud, Discharge Objection