Most people who call our office about bankruptcy want the answer to one question before anything else: Will it get rid of my debt?
Usually, yes. Most of what regular people owe (credit cards, medical bills, personal loans, old collection accounts) can be wiped out. But not everything. Some debts survive bankruptcy no matter what. Others fall into a gray area where the answer turns on dates, paperwork, or what a creditor decides to do in the first couple of months of your case.
The difference matters. If most of your debt is dischargeable, bankruptcy can give you a real fresh start. If a big chunk of it isn’t, you need to know that before you file, not after. This guide walks through how it actually works, what the Bankruptcy Code says, and where people tend to get tripped up.
What Is a Dischargeable Debt?
A dischargeable debt is a debt that a bankruptcy court can permanently erase. Once you receive your discharge, you’re no longer personally liable for it. The creditor can’t sue you, call you, send letters, garnish your wages, or try to collect from you in any other way. The discharge order works like a permanent injunction against collection.
A non-dischargeable debt is one you still owe after the case ends. Congress decided, for policy reasons, that certain obligations (child support, most recent taxes, debts from fraud, and a handful of others) shouldn’t be erased just because someone filed for bankruptcy.
One point that surprises people: bankruptcy law doesn’t have a list of debts that can be discharged. It works the other way around. Every debt is presumed dischargeable unless it falls into one of the exceptions in Section 523 of the Bankruptcy Code. So the real question is always, “Does this debt fit one of the exceptions?” If it doesn’t, it goes away.
What Debt Does Bankruptcy Cover?
Here are the debts we see discharged most often. For the typical person filing in New Jersey, these make up most, and sometimes all, of what they owe:
- Credit card balances, including store cards and cards that have been charged off and sold to debt buyers
- Medical bills, whether from a hospital stay, an ambulance ride, or years of copays
- Personal loans from banks, online lenders, and credit unions
- Payday loans and cash-advance loans
- Collection accounts and old debts that have been sold several times
- Past-due utility bills and cell phone bills
- Deficiency balances left over after a car repossession or a foreclosure sale
- Most civil judgments, such as a judgment a credit card company got against you in Superior Court
- Unpaid rent owed to a former landlord and broken-lease balances
- Business debts you personally guaranteed, if you’re filing as an individual
- Loans from friends or family (you have to list them, but they’re dischargeable like any other unsecured debt)
- Some older income taxes, if they meet the timing rules explained below
Notice what these have in common. They’re mostly unsecured, meaning there’s no collateral tied to them, and they came from ordinary financial trouble: a job loss, an illness, a divorce, or a business that didn’t make it. That’s exactly what bankruptcy is designed for.
Debts Bankruptcy Usually Won’t Erase
Section 523 lists the exceptions. The U.S. Courts’ overview of bankruptcy discharge counts 19 categories in all. These are the ones that come up most in real cases:
- Child support and alimony. Anything the law calls a “domestic support obligation” survives. Always.
- Recent income taxes and trust fund taxes. Income taxes that don’t meet the timing rules, and payroll or sales taxes collected from others, stay with you.
- Most student loans, unless you prove “undue hardship” (more on this below, because the process has changed).
- Criminal fines, restitution, and most government fines and penalties, including many traffic tickets and court costs.
- Debts for death or injury caused while driving drunk or impaired.
- Debts from fraud, embezzlement, or theft, if the creditor wins a lawsuit in the bankruptcy court.
- Debts for willful and malicious injury to another person or their property.
- Debts you didn’t list in certain situations, where the creditor never found out about the case in time to protect its rights.
- Loans from your own 401(k) or other retirement plan.
- Condo and HOA fees that come due after you file, for as long as you still own the unit.
- Debts from a prior bankruptcy where the discharge was denied or you waived it.
The “It Depends” Debts
This is where most blog posts stop being useful. They put taxes and student loans on the “never” list and move on. The real answer is more nuanced, and for some people it’s the difference between filing and not filing.
Income Taxes - The 3-2-240 Rule
Older federal and New Jersey income taxes can be discharged if all of these are true:
- Three years: The return was due (including any extension) more than three years before you file for bankruptcy.
- Two years: You actually filed the return more than two years before your bankruptcy.
- 240 days: The tax was assessed more than 240 days before you file.
- No fraud: The return wasn’t fraudulent, and you didn’t willfully try to evade the tax.
So a 2021 tax debt might be dischargeable today while your 2023 balance is not. Be careful with late-filed returns and returns the IRS prepared for you (called substitute-for-return assessments). Courts around the country disagree on how those are treated, and some federal appeals courts have held that a late return can never qualify. This is a spot where you want a lawyer to pull your IRS account transcripts and check the dates before you file.
The clocks can also be paused. A prior bankruptcy case, or an offer in compromise pending with the IRS, can extend those waiting periods, so the calendar math isn’t always as simple as it looks.
Payroll trust fund taxes and sales taxes you collected from customers are a different story. Those generally aren’t dischargeable at all.
Student Loans - Harder, But No Longer Hopeless
For years, people were told student loans “can’t be discharged.” That was never quite true. The law says they can be discharged if repaying them would cause undue hardship. You have to ask the court for that by filing a separate lawsuit (called an adversary proceeding) inside your bankruptcy case.
In New Jersey, federal courts apply the three-part Brunner test, which the Third Circuit adopted in In re Faish. You generally have to show that you can’t maintain a minimal standard of living while repaying, that your situation is likely to last, and that you made good-faith efforts to repay.
What changed is how the federal government handles these cases. Since November 2022, the Department of Justice has used a standardized attestation form for federal student loans. You fill out a detailed form about your income, expenses, and circumstances, and government attorneys use it to decide whether to agree that your loans should be discharged. The DOJ still maintains its student loan guidance and attestation form on its website. Private student loans don’t go through that process, and some private loans may not even qualify as protected “educational loans” in the first place. Both situations are worth a close look.
Recent Credit Card Charges & Cash Advances
Running up cards right before filing can backfire. Under the current inflation-adjusted figures in Section 523(a)(2)(C), the law presumes fraud if you:
- Charged more than $900 in luxury goods or services with a single creditor within 90 days before filing, or
- Took cash advances totaling more than $1,250 within 70 days before filing.
Groceries, gas, rent, and medical care usually aren’t “luxury” purchases. A presumption also isn’t automatic non-dischargeability. The creditor still has to act, and you can rebut it. But if you’re thinking about bankruptcy, stop using credit cards now.
Fraud & Willful Injury - The 60-day Window
Some exceptions don’t apply on their own. For debts from fraud, embezzlement, breach of fiduciary duty, or willful and malicious injury, the creditor has to file a complaint in the bankruptcy court. The deadline is 60 days after the first date set for your meeting of creditors. If the creditor misses it, the debt is discharged, even if the creditor had a decent argument. In practice, most credit card companies don’t bother to sue unless the facts are bad.
Which Bankruptcy Discharges All Debt?
The short answer: none of them. No chapter of the Bankruptcy Code wipes out every possible debt. Child support, alimony, recent taxes, criminal restitution, and drunk-driving injury claims survive every type of personal bankruptcy.
But Chapter 13 comes closest. Its discharge is broader than Chapter 7’s, and for some people that’s the deciding factor.
| Bankruptcy Issue | Chapter 7 | Chapter 13 |
|---|---|---|
| How it works | Liquidation; a trustee sells any non-exempt property. | Repayment plan over 3 to 5 years; you keep your property. |
| When you get the discharge | Usually about 3 to 4 months after filing. | After you finish all plan payments. |
| Credit cards, medical bills, personal loans | Discharged. | Discharged (whatever the plan doesn’t pay). |
| Property settlement debts from a divorce | Not discharged. | Discharged. |
| Willful and malicious damage to property | Not discharged if the creditor sues and wins. | Discharged. |
| Debts you took on to pay nondischargeable taxes | Not discharged. | Discharged. |
| Child support, alimony, recent taxes | Not discharged. | Not discharged (priority debts are usually paid in full through the plan). |
| Mortgage arrears | Not addressed; the lender can still foreclose. | Can be caught up through the plan. |
The divorce piece is a big deal in New Jersey. If your ex-spouse was ordered to take the house and you were ordered to pay off a joint credit card or a home equity line, that “hold harmless” obligation won’t go away in Chapter 7. In Chapter 13, it generally can, as long as it’s a property settlement and not support.
Chapter 13 also has a “hardship discharge” for people who can’t finish their plan because of circumstances beyond their control, although it’s narrower than the regular Chapter 13 discharge. For a deeper look at how and when that final order is entered, see our post on how a Chapter 13 bankruptcy discharge works.
Which chapter is right for you depends on your income, your assets, whether you’re behind on your mortgage or car, and what kind of debt you have. Qualifying for Chapter 7 in New Jersey also means passing the means test. It starts by comparing your income to the New Jersey median for your household size. If you’re above it, a more detailed look at your expenses decides whether you qualify.
A Discharge Erases Debt, Not Liens
This one catches people off guard. A discharge wipes out your personal obligation to pay. It doesn’t automatically remove a lien on your property.
Say you owe $18,000 on a car. After a Chapter 7 discharge, the lender can’t sue you for that money. But it still has a lien on the car, so if you stop paying, it can take the car back. The same goes for a mortgage. That’s why people who want to keep their house or car either keep paying, sign a reaffirmation agreement, or use Chapter 13 to deal with arrears.
Some liens can be removed. Judgment liens that impair an exemption you’re entitled to in your home (in New Jersey, usually the federal homestead exemption, since the state doesn’t have its own) can sometimes be avoided in bankruptcy, and in Chapter 13 a wholly unsecured second mortgage can sometimes be stripped off. But these take a motion. They don’t happen on their own.
Mistakes That Can Cost You Your Discharge
There’s a difference between one debt being non-dischargeable and losing your discharge altogether. The second is much worse: you go through the whole case and walk away still owing everything. It’s rare, and it’s almost always avoidable. The court can deny a Chapter 7 discharge if you:
- Hide assets or transfer property to a relative to keep it away from the trustee
- Lie on your bankruptcy schedules or at your meeting of creditors
- Destroy or fail to keep financial records without a good reason
- Don’t complete the required financial management (debtor education) course
- Received a Chapter 7 discharge in a case filed within the last eight years
A few other habits cause trouble too. Paying back a relative right before you file can let the trustee claw that money back from them. Leaving a creditor off your schedules can create problems for that debt. And forgetting to mention a pending lawsuit you might win, such as a personal injury claim, can put the claim itself at risk. Full honesty on your paperwork is the single best protection you have.
Frequently Asked Questions About Dischargeable Debts
- What is dischargeable in bankruptcy?
- Most unsecured consumer debt: credit cards, medical bills, personal and payday loans, collection accounts, utility bills, deficiency balances after a repossession or foreclosure, and most civil judgments. Some older income taxes qualify too. Any debt that doesn’t fall into one of the exceptions in Section 523 of the Bankruptcy Code is dischargeable.
- Can bankruptcy wipe out all of my debt?
- For many people, yes, because everything they owe happens to be dischargeable. But no chapter erases every type of debt. Support obligations, recent taxes, criminal restitution, and most student loans typically survive. Chapter 13 has the broadest discharge.
- Does bankruptcy get rid of medical debt?
- Yes. Medical bills are unsecured debt and are fully dischargeable in both Chapter 7 and Chapter 13, whether they’re still with the hospital or have gone to collections.
- Will I still owe my car loan or mortgage after bankruptcy?
- Your personal liability is discharged, but the lien stays. If you want to keep the car or house, you’ll need to keep making payments. If you give it back, you won’t owe any leftover deficiency balance.
- Can I discharge debts I owe my ex-spouse?
- Child support and alimony can’t be discharged in any chapter. Property settlement debts from a divorce, like an order to pay a joint credit card, can’t be discharged in Chapter 7 but generally can be in Chapter 13.
- How long after filing do I get my discharge?
- In Chapter 7, usually about three to four months after filing, assuming no one objects. In Chapter 13, you receive it after you complete your three- to five-year plan.
- What happens if I forget to list a debt?
- Tell your attorney right away. Schedules can usually be amended while the case is open. Depending on the type of case and the debt, an unlisted debt may still be discharged, but you don’t want to rely on that.
Talk to a New Jersey Bankruptcy Attorney Before You File
Knowing which of your debts are dischargeable is the first step. Knowing what that means for your case (which chapter fits, what you can keep, and whether any creditor is likely to fight) takes a closer look at your actual paperwork.
That’s what we do every day. The bankruptcy attorneys at Scura, Wigfield, Heyer, Cammarota & Gonzalez, LLP help New Jersey families and business owners get out from under debt they can’t pay. We’ll review your debts line by line, tell you honestly what bankruptcy can and can’t do, and lay out your options, including options that don’t involve bankruptcy at all.
Call us at 973-786-1582 or schedule a consultation. We have offices across North Jersey, including Wayne, Hackensack, Newark, Secaucus, and Clifton. The sooner you get real answers, the sooner the collection calls stop. We do offer a free phone consultation.
