Debts you can wipe out in a Rhode Island bankruptcy

by JOSHUA R KARNS on Jun. 11, 2020

Bankruptcy & Debt Bankruptcy & Debt  Bankruptcy Bankruptcy & Debt  Collection 

Summary: If you qualify for a Chapter 7 bankruptcy in Rhode Island you will be able to wipe out or “discharge” your credit card debt, medical bills, car loans, personal loans, other unsecured debts and sometimes even taxes owed to the government. But not all debts will be discharged in a Rhode Island Chapter 7 bankruptcy case. That means that when your bankruptcy case closes you will still have a legal obligation to pay them back.

Debts that are automatically not discharged in a Rhode Island Chapter 7 bankruptcy

Some types of debts will automatically not be discharged in a Rhode Island Chapter 7 bankruptcy case.  These are:

  • Most taxes
  • Child support, alimony and property settlement obligations
  • Fines or penalties owed to government agencies
  • Student loans
  • Personal injury debts arising out of a drunk driving accident
  • Debts arising out of tax-advantaged retirement plans
  • Condo fees
  • Attorneys’ fees for child custody or support and
  • Criminal restitution and other court fines or penalties.
  • Debts that you forget to list in your court papers
  • Debts for fraud in a fiduciary capacity
  • Debts for willful and malicious injury caused to someone 
  • Non-dischargeable debt from a prior bankruptcy

Student loans and bankruptcy

Student loan debt is generally not wiped out in Rhode Island bankruptcy cases.  It doesn’t matter if you file a Chapter 7 or Chapter 13 bankruptcy.  That means that after your bankruptcy case is closed you will still be obligated to pay them back.  The law governing this does leave some room for people to have their student loans wiped out through bankruptcy.  The United States Bankruptcy Code requires that you prove the student loan debt would impose an “undue hardship” on you or your dependents.  You would have to file a motion to do this and would require evidence of your undue hardship.  From the statute itself its not very clear as to what you would need to prove.  What’s an undue hardship?  But this case law, which is limited, is pretty clear.  Very few people have been able to get their student loans wiped out and would require a disability of some type that doesn’t allow you to work. 

Debts not discharged if creditor objects

Creditors in a bankruptcy case can object to your discharge with regard to their debt.  A creditor can object to a discharge of the following debts:

  • Credit card purchases for luxury goods totaling more than $725 owed to a single creditor within 90 days of filing for bankruptcy.
  • Cash advances of more than $1,000 from one creditor within 70 days of filing for bankruptcy.  
  • Debts obtained by fraud like misrepresenting your income on a loan application.
  • Debts incurred due to willful and malicious injury to someone or their property. 

The bankruptcy court denies your discharge

Most people who file a Rhode Island bankruptcy case go through the process without any problems.  Typically there are no objections from the creditors or the case trustee.  The bankruptcy trustee can object to a discharge if they find that you did any of the following:

  • failed to keep or produce adequate financial records
  • failed to explain how you lost money or property
  • committed a bankruptcy crime such as perjury 
  • failed to obey an order of the bankruptcy court 
  • fraudulently transferred, concealed, or destroyed property that would have become property of the bankruptcy estate or 
  • failed to complete an approved instructional course concerning financial management.

You have already filed for bankruptcy

There is a limit to how often you can wipe out debts through bankruptcy.  You cannot discharge debts through bankruptcy if you have done so previously in the last 8 years.  This goes for all types of debts.  The bankruptcy court will dismiss your Chapter 7 bankruptcy case and you will continue to be responsible for paying the debts back.  

The bankruptcy court revokes your discharge

Your discharge in a Chapter 7 bankruptcy can be revoked under certain circumstances.  The Chapter 7 bankruptcy trustee, United States trustee or your creditors can request that your discharge be revoked if you:

  • obtained your discharge through fraud and the party requesting the revocation did not discover the fraud until after the discharge was granted.
  • you acquired or became entitled to property that would be considered property of the bankruptcy estate and failed to disclose it to the court or surrender it to the trustee
  • refused to follow court orders. 
  • failed to explain a material misstatement or produce the required documents in a bankruptcy audit.

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