What Debts Cannot Be Discharged in Chapter 7 Bankruptcy?

You might have heard that filing for Chapter 7 bankruptcy is like hitting a giant reset button that wipes away every single penny you owe. While it is true that this process provides a powerful fresh start, the law does not treat every bill the same way. Some debts are like persistent shadows; they stay with you even after the court grants your discharge.

Understanding the distinction between what goes away and what stays is the first step toward a realistic financial plan. In Michigan, the rules for non-dischargeable debts in Chapter 7 are strict, but they are also predictable. We want to help you identify which of your obligations are likely to be erased and which ones will require a different strategy.

What is a Bankruptcy Discharge in Michigan?

A discharge is a permanent court order that releases you from personal liability for certain debts. Once a debt is discharged, the creditor is legally prohibited from taking any action to collect it. This means no more phone calls, no more lawsuits, and no more wage garnishments for those specific debts.

A bankruptcy discharge in Michigan does not eliminate all types of debt. Under federal law, specifically 11 U.S.C. § 523, there are certain categories of debt that are generally not dischargeable. These include obligations such as most taxes, child support, alimony, and certain student loans. In our Royal Oak practice, we find that most clients are affected by only a small number of these exceptions.

Which Debts Usually Survive a Chapter 7 Filing?

When we talk about non-dischargeable debt, we mean obligations that the law considers too important to be wiped out. These often involve public policy concerns, such as supporting children or holding someone accountable for injuries caused by illegal acts.

Domestic Support Obligations

Family comes first in the eyes of the law. If you owe child support or alimony, these debts are almost never erased. Whether you are behind on payments or worried about future ones, these obligations are not dischargeable in Michigan bankruptcy.

• Child Support. You must continue making payments throughout your case.
• Spousal Support. Alimony is also protected to ensure the recipient is not left without necessary support.

Under 11 U.S.C. § 523(a)(5), these are classified as domestic support obligations and are strictly non-dischargeable.

Most Student Loans

Student loans are among the most difficult debts to discharge in a Chapter 7 bankruptcy. While it is technically possible to have them eliminated, the standard is very high. You must show that repaying the loan would cause undue hardship, which generally requires proving a permanent inability to maintain a minimal standard of living.

In Michigan, courts typically apply the Brunner Test to evaluate these claims. This test considers your current income, the likelihood that your financial situation will improve, and whether you have made good faith efforts to repay the loan in the past. For the vast majority of filers, student loans survive bankruptcy.

Tax Debts to the Government

The Internal Revenue Service and the State of Michigan generally expect their taxes to be paid and do not automatically discharge tax debts in bankruptcy. Some older income taxes can be discharged, but only if they meet very specific federal criteria. Generally, taxes that are less than three years old cannot be discharged.

To be dischargeable, a tax debt usually must:

• Be for a tax year where the return was due at least three years ago.
• Have been filed at least two years before your bankruptcy petition.
• Have been assessed by the IRS at least 240 days before filing.

If the tax debt involves fraud or a willful attempt to evade payment, it is non-dischargeable.

Debts from Drunk Driving Accidents

Bankruptcy is designed to help the honest but unfortunate debtor, not to protect individuals from the consequences of illegal or harmful actions. If you have a court judgment for personal injury or death caused by operating a vehicle while intoxicated, that debt cannot be discharged in bankruptcy. This rule applies to accidents involving cars, boats, and even aircraft.

Are There Debts That Creditors Must Fight to Keep?

The debts discussed earlier are automatically non-dischargeable, meaning the law keeps them active without any action from a creditor. However, there is another group of debts that may remain your responsibility only if a creditor takes action.

Fraud and False Pretenses

If a creditor believes you lied on a credit application or used a credit card without intending to repay it, they can file an adversary proceeding, which is essentially a mini-lawsuit within your bankruptcy case. Under 11 U.S.C. § 523(a)(2), if the creditor proves fraud, that specific debt will not be discharged.

Common examples include:

• Luxury Goods. Purchasing more than $800 worth of luxury items within 90 days before filing.
• Cash Advances. Taking out more than $1,100 in cash advances within 70 days before filing.

The law presumes these transactions were made with the knowledge that you were about to file for bankruptcy, making them more difficult to discharge.

Willful and Malicious Injury

If you intentionally caused harm to someone or their property, the resulting debt is generally not dischargeable. This does not include accidents, such as a typical fender bender. It applies to acts that were deliberately intended to cause injury or damage.

How Does Michigan Law Impact Your Property?

While it is important to understand what you owe, it is equally important to consider what you own. In Michigan, you can choose between federal bankruptcy exemptions or Michigan state exemptions to protect your assets. The choice you make can influence how you handle your remaining debts.

Michigan state exemptions are adjusted annually for inflation, and the amount you can protect depends on factors like your age and disability status. For example, the homestead exemption protects equity in your home, with higher limits available for individuals who are 65 or older or disabled.

Choosing the right set of exemptions is an important conversation with every client. If you have significant equity in your home but also face non-dischargeable debts in Chapter 7, we can help ensure your home is protected while you address the debts that remain.

Can You Still Get a Fresh Start?

Even with certain non-dischargeable debts, the vast majority of people find that Chapter 7 provides significant relief. Most debts that weigh people down, such as credit cards, medical bills, personal loans, and utility arrears, are generally fully dischargeable.

If you live in Royal Oak or the surrounding Metro Detroit area, you likely have a mix of these types of debt. Imagine clearing tens of thousands in credit card balances. Even if you still have a student loan or other non-dischargeable obligations, your monthly budget becomes much more manageable. You can finally focus your income on the debts that remain and start rebuilding your financial life.

Key Takeaways

• Priority debts such as child support and alimony are never discharged, so you remain responsible for paying them throughout your bankruptcy case.
• Most government debts, including recent taxes and criminal fines, must still be paid, as they are generally not dischargeable.
• Student loans are rarely eliminated in bankruptcy unless you can demonstrate undue hardship under the applicable legal standard.
• Debts resulting from fraud, false pretenses, or intentional harm, including drunk driving accidents, cannot be discharged, because bankruptcy does not protect against the consequences of illegal or harmful actions.
• Michigan state exemptions and federal exemptions allow you to protect your home, vehicle, and other assets, helping you preserve property while addressing your debts.
• Most unsecured debts, such as credit cards, medical bills, personal loans, and utility arrears, can be discharged, giving you the opportunity for a fresh financial start.

Frequently Asked Questions

Q. What happens if I forget to list a debt on my paperwork?

A. In Michigan, if you unintentionally leave a creditor off your schedules in a “no-asset” case, the debt may still be discharged. However, it is always safer to list all debts. Certain obligations, such as child support, alimony, or debts arising from fraud, are never discharged, even if you accidentally omit them.

Q. Will bankruptcy stop my wage garnishment for child support?

A. No. While bankruptcy triggers an automatic stay that stops most collections, it does not stop the collection of domestic support obligations. You must continue to pay child support as ordered by the Michigan Friend of the Court.

Q. Can I discharge my HOA fees?

A. Homeowners association fees that come due after you file for bankruptcy are generally not dischargeable if you still own the property. Fees that accrued before filing may be dischargeable in Chapter 7.

Q. What if my debt is from a divorce settlement that is not support?

A. Debts from a divorce that are not classified as support may still be treated differently in bankruptcy. Under 11 U.S.C. § 523(a)(15), most debts arising from property settlements in a divorce or separation agreement are non-dischargeable in Chapter 7.

Q. Does a discharge remove a lien from my house?

A. A bankruptcy discharge eliminates your personal obligation to pay the debt, but it does not automatically remove a lien. If a creditor has a recorded lien on your property, they may still be able to enforce it after your case unless additional steps are taken to address the lien during the bankruptcy process.

Contact Hammerschmidt Stickradt & Associates Today

The path to financial freedom is not always a straight line, but you do not have to walk it alone. At Hammerschmidt Stickradt & Associates, we take pride in helping our Royal Oak community find the light at the end of the tunnel.

We can help you look at your specific list of bills and determine exactly what stays and what goes. If you are tired of the constant stress and want to know more about bankruptcy discharge in Michigan, reach out to us. We will sit down with you, look at your situation, and build a plan that works for your life.

Take the first step toward a clearer future. Reach out to our team at Hammerschmidt Stickradt & Associates to schedule your free consultation and get the answers you need.