Bankruptcy is all about the “Fresh Start.” It is for getting out from under crippling debt and getting a chance to start over after making peace with creditors. Hopefully it is an opportunity to clear the air, get focused on moving forward again and getting back into a productive mind set. The mechanism by which these goals are accomplished is the discharge. The discharge is the order that removes the debtor’s obligation to pay debts. Not everyone gets a discharge because it is supposed to be limited to debtors who, through no nefarious acts on their part, ran into some bad luck or hard times and got into financial trouble. Bankruptcy courts try to limit giving a discharge to the “honest but unfortunate” debtor, see Grogan v. Garner (1991) 498 US 286 for a more detailed examination of this concept.
But even when a debtor is “honest but unfortunate”, not all his or her debts will necessarily qualify for discharge. There are limits on what can be discharged and who gets the benefit of a discharge. In fact entire books are written about this stuff. For our purposes, it is important to know that certain debts do not get discharged because it is not good for public policy, basically meaning, it is not good for the government so it is not good for anyone. Other debts do not get discharged because the debtor was a bad person. Most of the exceptions to discharge are listed in section 523 of the bankruptcy code. The typical items not dischargeable on public policy grounds are things like taxes, customs duties, money borrowed to pay an otherwise non-dischargeable debt, spousal and child support obligations, debts incurred to a spouse in a divorce proceeding, fines and other similar penalties owed to a governmental entity, debts incurred by a criminal for restitution ordered in a federal criminal case, certain student loans, loans taken from pension plans like a 401k or other federal government sanctioned pension or profit sharing plan.
The types of debts not dischargeable for bad boys include debts for money or services obtained by fraud, or through the use of a false financial statement, fiduciary larceny or embezzlement, willful and malicious injury inflicted on another, injuring or killing another person while driving intoxicated, and some other acts related to issuance or sale of securities or operating a bank or savings and loan or such institution.
But other than the debts set out in the laundry list of non-dischargeable debts in section 523, the rest of the many ways a debtor can get into debt can be discharged in bankruptcy. Basically, if it is not specifically listed as not dischargeable, then it is dischargeable. This gives most people a pretty good chance of getting their fresh start after the bankruptcy. It is really amazing to see how many people recover their sanity and ability to be productive after they go through a bankruptcy and get a new opportunity to succeed. There are always the bad cases that people like to point at to criticize the system and cite as proof it does not work and is subject to abuse, but those cases, as in the rest of life, seem to be the rare exception, rather than the rule. It seems most people are good hard working souls at heart and a bit of a hand up is all they need to get back to contributing to our society as a whole.
All important disclaimers! This blog simply contains my thoughts and ruminations on certain subjects. They are thoughts in general and are not intended to be given or taken as legal advice. I do not give legal advice until I have had a chance to get a good handle on the facts of a case and have been hired. If anything in this entry piques your interest or seems to apply to your situation follow it up by consulting an attorney. Please do not hesitate to contact us through our website at http://www.schinzelaw.com/