Bankruptcy helps relieve the burden of credit card and loan debts, medical bills, back utilities and rent, and so forth.
But there are some debts that bankruptcy does not affect; that are “immune” from a bankruptcy discharge – the word is “non-dischargeable”. This means that when the smoke clears and the bankruptcy is over, these debts will still have to be paid.
Today I’d like to discuss what I call Intentional Debt. It’s not a legal phrase and you won’t find it in a law dictionary or on other legal websites or blogs.
I made it up.
Intentional Debts are the kinds of debts incurred that you should not have incurred – and knew you should not have. You were being naughty when you incurred the debt. Shame shame!
Here is the law that states that some intentional acts are non-dischargeable. The law that says so is 11 USC 523(a)(2). I will reprint it here without all the legalese:
A debt is not discharged in bankruptcy if it is “… for money, property, services, or an extension, renewal, or refinancing of credit … obtained by … false pretenses, a false representation, or actual fraud, other than a statement … (of) … the debtor’s or an insider’s financial condition.”
In other words: you lied.
About anything. Whether it was on the loan application or over the phone or in person. If you intentionally lied to get the loan, that debt can be ruled non-dischargeable and you will have to continue to pay it even though you filed for bankruptcy.
If you said you were working and you were not. Or that you were NOT working and you WERE (this applies to overpayment of unemployment, for example), if you said you were current on your rent or mortgage and you were not. If you said you owned your car and you did not. If you said you have no children living with you and you have two. You get the idea.
Remember we are talking “intentional” …
“You said you co-owned a car with your ex-boyfriend but he traded that car in the month before!”
Let’s pause a minute and let reality sink in. It’s hard to get a ruling against you with this kind of action. Because it’s hard to prove intent.
“You didn’t list the fact that you still owe on a credit card!” Maybe when you filled in the loan application you honestly forgot about that. You DID list the car, the OTHER credit card, the computer loan … maybe it was an honest mistake. Maybe the application only had room for a few loans and you didn’t have space to put it in. Maybe the loan was going to be used to pay OFF that credit card and so why bother list it? (Hey, that line of logic made sense to you at the time – and it still makes sense!).
“You didn’t list all your bank accounts on the application!” Was it a Christmas club and the application was filled out the spring (and you forgot about the ten dollars in it)? Was it a joint account that you forgot about?
The creditors will comb through your bankruptcy paperwork for things like this.
Fortunately things like this fall through. “I got the bank account after I got your loan but before the bankruptcy. Same with the credit card. Same with the car loan.”
If the creditor is smart they will ask your bankruptcy attorneys about these discrepancies before bringing any court action. Your attorney will ask you about the facts (when did you open the account? When did you buy the car or get the credit card?) and relay them to the attorney for the creditor. The creditor can then decide whether it is worth filing an action in the bankruptcy court.
Do you see the inference here? As long as the creditor can prove you were NOT twirling your moustache and snarling, “nyah-ah-ah!” after getting the loan, you are probably safe.
The creditor still has a right to try the case before the bankruptcy judge. You will still have to defend yourself or hire an attorney to help you defend yourself.
Keep that in mind: do you want to pay an attorney a thousand dollars to defend an eight hundred dollar loan?
Check with a local bankruptcy attorney anyway if this happens. It may be you have a solid defense. And in some cases the losing side pays the winner’s attorneys fees. Since the creditor who is filing the challenge to the bankruptcy is usually a business, collecting the attorney’s fees will be easier than if it were an individual.
Read through those examples above and remember that your bankruptcy trustee will also be listening. You didn’t list a bank account on your loan? Was it also missing from the bankruptcy schedules? You might not only be in trouble in this proceeding to have the loan ruled non-dischargeable, but NOW the trustee might file an action for not telling the truth on your bankruptcy schedules.
Calm down. If the missing bank account (or missing vehicle or other asset) is not enough to make the debt in question non-dischargeable, it is probably inconsequential enough to escape the trustee’s wrath, too. To be safe, amend the schedules to add the bank account or vehicle or asset anyway…
One last example:
“You forged your grandmother’s name as a codebtor so you could get the loan?” Um, yeah. If that is true; I think they got you. You’d better own up and admit that debt will survive the bankruptcy …
The bottom line is that if you were cackling with glee over “getting away” with what you did – getting the loan – that loan may survive the bankruptcy if the creditor (the person or company you owe the money to) challenges your bankruptcy.
A good local bankruptcy attorney will have the experience and knowledge of your district to advise you how the bankruptcy judge of that district views and reviews these factors.
If the creditor wins and the debt is ruled non-dischargeable, it will survive the Chapter 7 bankruptcy and you will have to resume paying it when the bankruptcy case is over. In a Chapter 13, any amount not paid by the disbursing Trustee will survive, including unpaid interest (if the original loan allowed for interest). In neither kind of bankruptcy will you have to pay on the debt during the bankruptcy.
More “Intentional Debts” next time …
Copyright 2016 Michael Curry
About the author: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.
He is also the author of books on finance and bankruptcy available on Kindle through Amazon!
Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!
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