One of the common misunderstandings of consumer bankruptcy in Arkansas and Tennessee is the belief that bankruptcy discharges all eligible debts. Each Bankruptcy Code chapter sets parameters around the types of debt a judge may discharge, but ultimately, the court will decide each case on an individual basis by considering all relevant factors.
This will include your good faith efforts and cooperativeness, your repayment potential, the nature of the debt, the chapter of bankruptcy you are pursuing and whether or not the creditor disputes the discharge.
Before discussing the individual factors that affect debt discharge cases, it is important to note that not all debts qualify for discharge. For example, chapter 13 bankruptcy generally allows broader discharge of debts than Chapter 7. Chapter 13 includes the potential to discharge debts resulting from malicious property damage, tax obligations and even debts from court orders such as divorce and property settlements. Chapter 7 does not include these items as eligible for discharge.
Generally, however, debts from court-ordered payments such as fines for criminal convictions, damages from civil claims, child support orders and spousal support are not eligible for discharge under any chapter. Nor are student loans or many types of tax obligations.
Note that there are exceptions to these nondischargeable debts, but they are rare, and judges will decide them on an individual basis if you have a good reason why you are unable to fulfill these obligations.
Disputes and exceptions
Just because you bring a bankruptcy case before a court does not mean that a judge will necessarily dispose of all of your eligible debt. There are several cases when a court may determine that you should retain the obligation to repay certain debts.
One of the requirements for certain types of bankruptcy is that you attend a financial education course as a part of the process. Failing to cooperate with this requirement without a good reason could result in a judgment reversing a discharge — saddling you once more with the debt you thought you just disposed of.
Similarly, if a judge grants a discharge, the clerk will need to notify your creditor of the decision. The creditor then has a certain window of time to dispute the discharge. He or she may convince a court that you should retain the obligation of repayment for some reason or another.
Generally speaking, however, courts will discharge all eligible debts you include in your petition so long as you are genuinely unable to pay, and as long as you are cooperative and act in good faith.
In some cases, such as those under chapter 13, you will probably need to set up a payment plan for a certain amount of time before the court discharges your debt, and in others, such as bankruptcy under chapter 7, you will probably need to repay as much debt as you can with your liquidated assets before a judge will discharge the rest.