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Nondischargeable Debts the Bankruptcy Code Won’t Tell You About

A few years ago I wrote about the debts that are excluded from a discharge order in a chapter 7 New York bankruptcy. There are, however, a handful of debts that are not only nondischargeable but also not specified as such in the Bankruptcy Code. True, they are rarely seen, but debtors might want to know just the same whether they owe these kinds of debts. Here’s a non-exhaustive list—the United States Code is a big place and there may be many more lurking out there.

  • Government Fines: If the federal government obtains a civil judgment against a person for a criminal fine, 18 U.S.C. 3613(e) renders that debt nondischargeable in any bankruptcy chapter. Even though tax debts are easier to discharge, it’s one more reason debtors should pay the U.S. government when they owe it money.
  • Indian Health Service Loans: The U.S. government has a loan repayment program to train health professionals to serve American Indian communities. Unlike most student loan repayment plans, however, this one permits students to discharge the loans five years after the first payment is required and if the bankruptcy court finds that refusing discharge is “unconscionable.” 25 U.S.C. 1616a(m)
  • Veterans’ Benefits under the Health Professionals Educational Assistance Program: Among the many benefits given to veterans is a scholarship program for those obtaining an education in the health professions. Like the Indian Health Services Loan Repayment Program, the benefits are dischargeable only five years after the first payment is due. 38 U.S.C. 7634(c) does not require an unconscionability analysis.
  • Health Education Assistance Loans (HEALs): The federal government offered a general loan program for graduate students in the health care professions (see a pattern here?), but it no longer does. However, to the extent anyone out there still has these loans, 42 U.S.C. 292f(g) generally limits their discharge to seven years after the first payment is due and a finding by the bankruptcy court that nondischarge would be “unconscionable.”
  • Armed Services Bonuses and Other Benefits: The U.S. armed forces provides some benefits that require recipients to maintain a certain level of eligibility. If the members receive those benefits but then fail the eligibility requirements, then according to 37 U.S.C. 303a(e)(4) that benefit becomes a debt to the federal government that cannot be discharged in bankruptcy until five years after the date of the termination of the agreement that provided the benefit.

As a side note, debtors will be happy to hear that in late 2015 Congress removed 20 U.S.C. 6674(f), which eliminated all bankruptcy protection for Troops-to-Teachers loans. That’s one you can strike off the list.

The overall story here is that special benefits for students in health care programs or former soldiers specify what happens to them when their recipients enter bankruptcy. Otherwise, just about everything else is in Title 11—where they belong.

If you’re concerned about the dischargeability of one of your debts, it’s crucial to discuss it with an experienced New York bankruptcy lawyer.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA

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