Understanding Nondischargeable Debts in Bankruptcy

Considering filing Chapter 7 or Chapter 13 bankruptcy? While it can be a powerful tool for financial relief, it’s important to understand what debts are nondischargeable such as debts because of criminal or bankruptcy fraud.

Updated on December 20, 2024.

Key Points on Nondischargeable Debts in Chapter 7 and Chapter 13 Bankruptcy

• Herbert Wright, aka rapper G Herbo pleads guilty to wire fraud
• Not all debts are dischargeable in bankruptcy
• Debts from illegal acts/crimes are nondischargeable in bankruptcy
• Domestic Support Obligations such as alimony and child support also can’t be eliminated in bankruptcy

There is a common misperception that one can file for bankruptcy and eliminate all debt, but that is not true. While most debts can eliminate bankruptcy, there are numerous types of debts that can’t be wiped out in bankruptcy. This blog post will focus on nondischargeable debts, including reviewing the criminal case of G Herbo as an example of debts that cannot be wiped out in bankruptcy.

G Herbo Pleads Guilty of Nationwide Fraud Conspiracy

G Herbo, (aka Herbert Wright) the rap star from Chicago pled guilty to once count of conspiracy to commit wire fraud and one count of making a false statement to a federal official. He was sentenced to three years of probation after an indictment by the grand jury in December of 2020.

According to Acting United States Attorney Joshua S. Levy, “Mr. Wright used stolen account information as his very own unlimited funding source, using victims’ payment cards to finance an extravagant lifestyle and advance his career.” This included a luxury villa rental in Jamaica, for $14,500, high end car rentals for $34,000, and $80,000 on four private jet rentals.

The press release issued by the U.S. Attorney’s Office in Massachusetts can be read here. Billboard reports that G Herbo had 3 top 10 albums.

Can The Government Fines and Restitution G-Herbo Has to Pay Back be Eliminated with Chapter 7 or Chapter 13 Bankruptcy?

Criminal Penalties and Bankruptcy

In Section § 523 (a)(4) of the Bankruptcy Code titled “Exceptions to Discharge” prevents debts related to “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.”

So, in this case, a case where a defendant is convicted of fraud, such as G-Herbo, those debts would not be eliminated or discharged in bankruptcy.

What Other Debts Are Nondischargeable in Bankruptcy?

The two common types of bankruptcy for individuals are Chapter 7 and Chapter 13. Chapter 11 is possible, but that is not a common type of bankruptcy. Typically, Chapter 11 equals one percent or less of bankruptcy cases.

Chapter 7 and Chapter 13 will eliminate the most common types of debt such as credit cards, personal loans, and medical bills, but it’s important to know that bankruptcy doesn’t eliminate all debt as we see with the issue of criminal fraud.

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Non-dischargeable debts don’t end with criminal cases. The Bankruptcy Code outlines other debts as well that cannot be eliminated in bankruptcy.

For example, debts that are known as Domestic Support Obligations (DSO) are nondischargeable in bankruptcy. These include debts related to family court, such as child support and alimony. But it doesn’t end there. Usually, attorney’s fees can be included in a bankruptcy, but if the attorney’s fees are related to a DSO, then it can’t.

Understanding Domestic Support Obligations in Bankruptcy | Alimony, Child Support

For example, say Parent A takes Parent B to court to establish a visitation schedule and child support. Parent A wins the case, and the judge orders Parent B to pay $5,000 of Parent A’s attorney’s fees. In the “old days,” before The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) which became the law in 2005, the fees would be eliminated if Parent B filed for bankruptcy. Now, Parent B would be required to pay the fees that are part of the child support case. So if the total amount of fees were $5,000, but $2,000 of those fees were related to arguing the child support issue, then $3,000 is subject to bankruptcy.

That’s why it’s critical how a divorce marital settlement agreement labels debts because if the debts are considered support payments, they can only be discharged with Chapter 13.

Owe the Government Back Taxes?

Back taxes are tricky when it comes to bankruptcy because depending on how much time has passed, it’s possible to eliminate the tax debt with bankruptcy. For example, the debt must be at least three years old since the tax return was filed, or any extensions. That’s important because just owing taxes isn’t enough if tax returns were never filed. It means the tax returns were filed and after three years no payments were made, and the IRS has not assessed the debt in the last 240 days.

Chart for Debts that are Non-Dischargeable in Bankruptcy

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Please note the information on this site does not constitute legal advice and should be considered for informational purposes only.