What Kind of Unsecured Loans Cannot Be Eliminated by Filing Bankruptcy in Ohio?

by Tom Streissguth

Filing for bankruptcy means asking a federal court to protect you from creditors. At the end of the process, the court will discharge -- that is, cancel -- any debts the law allows you to discharge. A debtor who files for bankruptcy protection must list all of his debts, whether they are secured by property or unsecured. The law allows you to discharge most, but not all, unsecured loans and other unsecured debts.

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Dischargeable Debts

A "dischargeable" debt is one that bankruptcy law allows you to get rid of in bankruptcy. In the state of Ohio and every other state, federal law governs the discharge of debts. The same rules apply whether you file for protection in Ohio or anywhere else, and no matter where the creditor is doing business.

Student Loans

By law, a bankruptcy court may not discharge student loans. Although these debts are unsecured, you must repay them either through liquidation of your assets in a Chapter 7 bankruptcy, or through a repayment plan in Chapter 13. This applies whether you contracted the loans through a public agency, such as the Department of Education, or through a private lender, such as a bank or credit union. Any remaining balances on non-dischargeable debts after the bankruptcy closes remain valid. The creditor can pursue you through lawsuits, court judgments, liens, levies, and garnishments. You can only avoid repayment by claiming, while the bankruptcy case remains open, that the debt would cause an undue hardship -- a very difficult claim to prove and one that bankruptcy courts decide on a case-by-case basis.

Child Support and Spousal Support

Other forms of non-dischargeable debt include federal taxes less than three years old, as well as child-support and alimony obligations set down by a martial separation agreement or divorce decree. The debtor can request discharge of any support obligations that an ex-spouse has assigned to a third party. If an ex-spouse has assigned the right to collect alimony to a relative, for example, the court may discharge the alimony. The court may also discharge payments that are not actually used for support of the ex-spouse. Payments that are used in order to divide property or repay marital debts, for example, may also be dischargeable. The decision depends on the language of the divorce decree or marital settlement agreement -- and how the bankruptcy court interprets that language.

Gambling Debts

In 2009, the voters of Ohio voted in favor of a constitutional amendment that allowed the construction of the first casinos in the state. Gambling debts -- and loans such as credit card cash advances used to gamble -- appear on many bankruptcy schedules, and as unsecured debts, the bankruptcy law generally allows their discharge. However, the law also states that you may not discharge any debt contracted without a good-faith intention to repay on the debtor's part. The court considers the circumstances, particularly any repayment history, in deciding this.