Bankruptcy can feel like a financial reset button for South Carolinians drowning in credit card balances, medical bills, and old loans. A Chapter 7 or Chapter 13 case filed with the U.S. Bankruptcy Court for the District of South Carolina can wipe out most unsecured debt and deliver the fresh start the law promises.
However, federal law carves out specific categories of debt that survive bankruptcy no matter how overwhelmed a filer may be. An experienced bankruptcy attorney can describe those exceptions before filing, saving South Carolina residents unpleasant surprises when their cases close.
Which Debts Cannot Be Erased
Section 523 of the U.S. Bankruptcy Code contains the rules about which debts cannot be erased through bankruptcy. Depending upon which chapter is filed, the following obligations are generally excepted:
- Most tax debts. Older overdue federal tax debt can be discharged under certain conditions, but taxes on unfiled or fraudulent returns and existing IRS liens may survive.
- Fraudulently incurred debts. The creditor or institution defrauded by the filer must act to preserve the debt from discharge.
- Criminal fines, DUI judgments, and restitution. These obligations survive bankruptcy as a matter of public policy; the fresh start bankruptcy offers isn’t meant to let filers sidestep accountability for criminal conduct or injuries caused by drunk driving. Courts treat this exception the same way in both Chapter 7 and Chapter 13, so there’s no filing strategy that avoids it.
- Domestic support obligations. Child support and alimony remain fully collectible, and bankruptcy’s automatic stay provision does not pause the obligation.
Certain Tax Debts
Back taxes don’t always survive bankruptcy; certain tax debt can be discharged. Tax and bankruptcy attorneys use the “3-2-240 rule” to check eligibility: if the return was due at least three years before filing, was actually filed at least two years before filing, and the tax was assessed by the IRS at least 240 days before filing, the debt may be discharged. However, payroll or “trust fund” taxes, taxes related to unfiled or fraudulent returns, and recent tax liabilities are non-dischargeable. Additionally, an existing IRS tax liens on real estate can survive because they are attached to the property title, not to the owner personally.
Student Loans, the Toughest Exception
Federal and most private student loans are presumed non-dischargeable. Wiping out these obligations requires filing a separate adversary proceeding and proving “undue hardship,” a demanding standard many courts assess through the Brunner test: whether repayment would prevent a minimal standard of living, whether that hardship is likely to persist, and whether the borrower has made good faith efforts to pay. It’s a high bar, and South Carolina filers pursuing it should expect to need experienced legal counsel.
Willful and Malicious Injury and Unlisted Debts
Debts stemming from intentional harm to a person or their property typically survive Chapter 7 bankruptcy, although Chapter 13 treats this category somewhat differently. Debts a filer simply forgets to list on their bankruptcy schedules can also remain collectible if the omission deprives the creditor of notice and an opportunity to participate in the case; whether an unlisted debt survives often depends on the specifics of how the case is handled.
Why This Matters for South Carolina Filers
Precise timing rules, adversary proceedings, and fact-specific tests like the Brunner standard dictate dischargeability, making small details the difference between a debt that disappears and one that doesn’t. Even a non-dischargeable debt isn’t necessarily a dead end as many can be folded into an affordable, court-approved Chapter 13 repayment plan. Anyone weighing bankruptcy in South Carolina, particularly with tax debt, student loans, or a family court judgment, should review their specific obligations with an attorney from Lam Law Firm. It’s the one sure way to find out if the fresh start they’re seeking actually covers what they need it to. Call for a consultation today.
