What Debts Can and Cannot Be Discharged in Bankruptcy in New Jersey?

When debt becomes overwhelming, one of the first questions you may have is: Will bankruptcy actually eliminate what I owe?



For many people in New Jersey, bankruptcy can provide significant relief from debts such as credit card balances, medical bills, and personal loans. However, bankruptcy does not automatically erase every financial obligation. Certain debts receive special treatment under federal bankruptcy law and may remain your responsibility even after your case is completed.

A bankruptcy discharge generally releases you from personal liability for qualifying debts and prevents creditors from continuing collection efforts on those discharged obligations. However, the debts that can be discharged depend on factors including the type of debt, how it arose, and whether you file under Chapter 7 or Chapter 13.

Understanding the difference between dischargeable and nondischargeable debt can help you determine whether bankruptcy may provide the financial relief you need.

What Does It Mean to Discharge a Debt?

A bankruptcy discharge means you are no longer personally responsible for paying a qualifying debt.

Once a debt has been discharged, the creditor generally cannot continue trying to collect it from you. That means the creditor cannot pursue collection through methods such as calls, letters, or legal action seeking payment of the discharged obligation.

However, there is an important distinction between eliminating your personal liability for a debt and eliminating a lien attached to property.

For example, a bankruptcy discharge generally does not automatically remove a valid lien securing a mortgage or vehicle loan.

This distinction becomes particularly important if you want to keep a home, vehicle, or other property securing a loan.

What Debts Can Usually Be Discharged in Bankruptcy?

Although every case is different, many common forms of unsecured consumer debt may qualify for discharge.

These can include:

• Credit card balances
• Medical bills
• Unsecured personal loans
• Certain older tax obligations that satisfy specific requirements
• Certain lawsuit judgments
• Utility bills
• Some unpaid lease obligations
• Other qualifying unsecured debts

Whether a particular debt is dischargeable depends on the facts, so you should not assume that a debt will disappear simply because it falls within one of these general categories.

Let's look at some of the most common debts individually.

Can Credit Card Debt Be Discharged?

In many bankruptcy cases, ordinary credit card debt can be discharged.

This can provide significant relief for people whose balances have grown because of interest, late fees, reduced income, emergencies, or the need to use credit cards to cover everyday expenses.

However, not every credit card obligation is necessarily dischargeable.

Federal bankruptcy law contains exceptions involving debts obtained through fraud or false representations. A creditor may also ask the bankruptcy court to determine that certain qualifying debts should not be discharged.

For this reason, recent spending, large purchases, cash advances, and the circumstances surrounding how debt was incurred may need to be reviewed before filing.

Can Medical Bills Be Discharged?

Medical debt is another common reason people consider bankruptcy.

Unexpected surgery, hospitalization, emergency treatment, rehabilitation, or ongoing healthcare expenses can leave families owing thousands of dollars even when they have insurance.

Medical bills are generally unsecured debts and may be eligible for discharge through bankruptcy.

If medical expenses are contributing significantly to your financial difficulties, include all outstanding medical debts when discussing your situation with a bankruptcy attorney.

Can Personal Loans Be Discharged?

Many unsecured personal loans may also qualify for discharge.

This can include certain loans obtained from:

• Banks
• Credit unions
• Online lenders
• Finance companies
• Other private lenders

Again, the circumstances matter. For example, federal bankruptcy law contains exceptions for debts arising from fraud and certain other misconduct.

Do not leave a personal loan off your bankruptcy paperwork simply because you are unsure whether it qualifies.

What Happens to Collection Accounts?

If an underlying debt qualifies for discharge, sending that debt to a collection agency generally does not transform it into a different type of obligation.

For example, an otherwise dischargeable credit card balance does not ordinarily become nondischargeable simply because the original creditor sent the account to collections.

Once a qualifying debt is discharged, the discharge order generally prohibits further attempts to collect it from you personally.

Can Lawsuit Judgments Be Discharged?

Sometimes.

A judgment does not automatically mean that the underlying debt can never be discharged.

The reason the debt arose can be important.

For example, federal law contains exceptions involving certain debts resulting from fraud, willful and malicious injuries, and death or personal injury caused by operating a vehicle while intoxicated.

If a creditor has already sued you or obtained a judgment, tell your bankruptcy attorney. The judgment and underlying claim should be reviewed before determining how bankruptcy may affect it.

Can Tax Debt Be Discharged?

Tax debt is more complicated.

Some tax obligations may potentially be discharged, while others cannot.

Whether a particular tax debt qualifies can depend on factors such as:

• The type of tax
• When the tax became due
• When the return was filed
• Whether required returns were filed
• Whether fraud or tax evasion was involved
• Other timing requirements

Federal bankruptcy law specifically excludes certain tax claims from discharge.

Because small differences in timing and filing history can change the outcome, do not assume that bankruptcy will—or will not—eliminate your tax debt without having the specific obligation reviewed.

What Debts Generally Cannot Be Discharged?

Bankruptcy law specifically protects certain categories of debt from discharge.

Common examples include:

• Child support
• Alimony and other qualifying domestic support obligations
• Most student loans, absent a qualifying exception
• Certain tax debts
• Certain criminal fines and restitution
• Certain debts resulting from fraud
• Certain debts arising from willful and malicious injury
• Debts arising from death or personal injury caused by intoxicated driving

The U.S. Bankruptcy Court for the District of New Jersey specifically identifies alimony and child support, most student loans, debts arising from death or injury caused by intoxicated driving, and criminal fines or restitution among common exceptions to discharge.

Can Child Support or Alimony Be Discharged?

Generally, no.

Domestic support obligations such as child support and alimony are not dischargeable under federal bankruptcy law.

Filing bankruptcy therefore does not provide a way to simply eliminate these responsibilities.

If you owe past-due support and are considering bankruptcy for other debts, discuss those obligations with your attorney so you understand how they may affect your case.

Can Student Loans Be Discharged?

Student loans require special consideration.

Most qualifying government-funded or guaranteed educational loans and certain other educational obligations are excluded from the ordinary bankruptcy discharge unless the debtor establishes the applicable legal requirements, including undue hardship where required.

In other words, student loan debt should not automatically be treated the same way as ordinary credit card or medical debt.

If student loans make up a significant portion of what you owe, discuss them specifically during your bankruptcy consultation.

What Happens to Criminal Fines and Restitution?

Certain criminal fines and restitution obligations are also protected from discharge.

The District of New Jersey Bankruptcy Court lists criminal fines and restitution among the common exceptions to bankruptcy discharge.

Bankruptcy may still help with other qualifying debts, potentially making it easier to manage obligations that remain after the case.

What About Debts Caused by Drunk Driving?

Federal bankruptcy law specifically excludes debts arising from death or personal injury caused by the debtor's unlawful operation of a motor vehicle, vessel, or aircraft while intoxicated.

Those obligations therefore cannot simply be eliminated through an ordinary bankruptcy discharge.

Can Debts Involving Fraud Be Discharged?

Fraud-related debts can present another important exception.

Federal law provides exceptions for certain debts obtained through:

• False pretenses
• False representations
• Actual fraud
• Certain materially false financial statements
• Fraud or defalcation while acting in a fiduciary capacity
• Embezzlement
• Larceny

For certain categories, the creditor must timely ask the bankruptcy court to determine that the debt should be excluded from discharge.

These cases can become significantly more complicated than an ordinary consumer bankruptcy.

What Happens to Your Mortgage in Bankruptcy?

A mortgage requires different analysis because it is generally a secured debt.

Bankruptcy may discharge personal liability for certain obligations under appropriate circumstances, but a valid lien on property generally survives unless it is avoided or otherwise addressed through the bankruptcy process.

That means bankruptcy does not automatically give someone a paid-off house.

If keeping your home is one of your priorities, your attorney will need to consider issues such as:

• Your mortgage balance
• Home equity
• Whether payments are current
• Applicable exemptions
• Whether you are filing Chapter 7 or Chapter 13
• Whether you are behind on mortgage payments

Chapter 13 can sometimes provide homeowners with an opportunity to address mortgage arrears through a repayment plan, although long-term mortgage obligations generally remain after discharge.

What About Your Car Loan?

Car loans are also typically secured by the vehicle.

Whether you can keep a financed vehicle can depend on factors such as the bankruptcy chapter, vehicle equity, payment status, applicable exemptions, and how the secured debt is handled in the case.

A discharge does not automatically eliminate a valid lien on the vehicle.

If keeping your car is important for work, family responsibilities, or everyday transportation, make that clear when discussing your bankruptcy options.

Does Chapter 7 Discharge the Same Debts as Chapter 13?

Not exactly.

Chapter 7

Chapter 7 is designed to provide eligible individuals with a discharge of many qualifying debts. However, numerous exceptions apply, including domestic support obligations, certain taxes, most qualifying student loans, certain intentional-injury debts, intoxicated-driving injury debts, and certain criminal restitution obligations.

Chapter 13

Chapter 13 generally involves making payments under a court-approved repayment plan before receiving a discharge.

The Chapter 13 discharge is somewhat broader than Chapter 7 in certain respects, but important debts remain nondischargeable, including domestic support obligations, certain taxes, most qualifying educational loans, certain intoxicated-driving debts, and certain criminal fines or restitution.

Choosing between Chapter 7 and Chapter 13 should therefore involve much more than asking which one eliminates more debt.

Could Bankruptcy Still Help if Some of Your Debts Cannot Be Discharged?

Yes.

Having nondischargeable debt does not necessarily mean bankruptcy provides no benefit.

Suppose you have a combination of:

• Credit card balances
• Medical bills
• Personal loans
• Student loans
• Tax obligations

Even if certain debts remain after bankruptcy, eliminating or restructuring other qualifying debts could potentially make your overall financial situation more manageable.

The key is understanding your complete debt picture rather than evaluating one account at a time.

Why You Should List All of Your Debts

When preparing for bankruptcy, disclose all of your creditors and debts to your attorney—even debts you believe cannot be discharged.

Do not intentionally omit:

• Money owed to family members
• Old collection accounts
• Medical bills
• Lawsuit judgments
• Tax obligations
• Student loans
• Support obligations
• Secured debts

Bankruptcy requires accurate financial disclosure, and federal law contains specific rules concerning debts that were not properly scheduled.

Your attorney can determine how each obligation should be treated.

What Happens After a Debt Is Discharged?

Once a debt has been discharged, you are generally no longer personally liable for paying it.

The discharge acts as a permanent injunction against collection of discharged debts. Creditors generally cannot continue collection lawsuits, send collection demands, or contact you seeking payment of those discharged obligations.

The District of New Jersey Bankruptcy Court also recommends keeping accurate copies of bankruptcy records and checking credit reports to ensure discharged debts are not incorrectly reported as outstanding.

How Can a Bankruptcy Attorney Help?

Determining whether a debt can be discharged is not always as simple as looking at the name of the creditor.

An attorney can review:

• What you owe
• Who you owe
• How the debt arose
• When the debt was incurred
• Whether the debt is secured
• Your tax history
• Existing lawsuits or judgments
• Your income and property
• Whether Chapter 7 or Chapter 13 may be appropriate

This allows you to understand what bankruptcy could realistically accomplish before deciding whether to file.

How the Law Office of Stuart M. Nachbar, P.C. Can Help

At the Law Office of Stuart M. Nachbar, P.C., Stuart Nachbar helps individuals and families in Livingston and throughout New Jersey evaluate their debt and understand whether bankruptcy may offer a path toward financial relief.

If you are struggling with credit cards, medical bills, collection activity, or other overwhelming financial obligations, Stuart can review your circumstances and explain how Chapter 7 or Chapter 13 bankruptcy may affect the debts you owe.

The firm also provides bankruptcy services for military members and their families, helping those who serve understand their options when facing financial hardship.

Call the Law Office of Stuart M. Nachbar, P.C. at 973-834-8058 to schedule a consultation and discuss your bankruptcy options.