What Debts Are Discharged in a Chapter 13 Bankruptcy?

Once agreed to in the Chapter 13 bankruptcy process, you must complete the entire plan. The bankruptcy judge will not enter the Chapter 13 discharge order unless you’ve held up your part of the bargain. Knowing what to expect in a Chapter 13 plan can make the entire process proceed much more smoothly. Let’s see what’s involved.

Required Elements to Receive a Chapter 13 Debt Discharge

When you file a Chapter 13 bankruptcy, a repayment plan is developed so you can make monthly payments to the bankruptcy trustee. To receive the bankruptcy discharge, you must make all the plan payments and complete the other bankruptcy code requirements:

• Certify that you have paid all your domestic support obligations
• Complete a financial management course
• Certify you are not barred by the repeat‑discharge waiting periods under the Bankruptcy Code (measured between filing dates​, these are usually two years after a prior Chapter 13 discharge and four years after a prior Chapter 7)

If your state offers a homestead exemption, the court will check for any pending cases or liens before ordering the debt discharge.

The Process of a Debt Discharge

During your Chapter 13 bankruptcy case, you and the trustee develop a plan to consolidate your outstanding debts and pay them back over a period of three to five years. During the same period, the court places an automatic stay on the collections process. While you pay off your creditors, the process protects you from repossession and foreclosures.

In addition to your monthly bankruptcy payments, you must continue paying some monthly obligations. You must remain up to date on:

• Mortgage payments after the date of the bankruptcy filing
• Child support and alimony payments
• Existing tax payments

The bankruptcy trustee distributes your monthly payments to your creditors according to their priority. Domestic support obligations have top priority, while unsecured debts have the lowest. If you stay current with your monthly payments and your existing obligations, the judge will review your case and discharge your remaining debts at the end of three to five years.

Effect of the Discharge

Once you complete your three or five year payment plan, the Chapter 13 discharge clears all remaining debts. This is true even you still owe money on some of the debts. If you stayed current throughout the time period and met the demands of your repayment plan, the judge will erase all remaining balances. 

Dischargeable Debts

A Chapter 13 clears most types of debt, including:

• Unsecured debts: Medical bills, personal loans, and credit card debt arrears are some types of unsecured debts that will be eliminated
• Unsecured tax obligations: These include those you filed on time but ere unable to pay off
• Debts incurred to pay off non-dischargeable tax bills: If you took out a personal loan to pay off your tax bill and couldn’t pay it back, it may be discharged through Chapter 13
• Property settlements in divorce or legal separation: This does not include alimony or child support payments, which cannot be dismissed under Chapter 13
• Civil judgments for willful and malicious property damage: Each case is different, but some may be eliminated by a successful Chapter 13 completion

Non-Dischargeable Debt

Some kinds of debt are not discharged by Chapter 13, even if you stay current on your payment plan. Debts that are not dischargeable include:

• Child support and alimony payments: These debts remain payable according to the existing court order
• Student loans
• Certain taxes
• Criminal fines, restitution, and personal injury judgments for DUI/DWI
• Mortgage payments and car loans if you keep the home or car, unless you surrender the asset(s)

Hardship Discharge

A hardship discharge is sometimes available for debtors during a Chapter 13 bankruptcy if something happens that prevents them from completing their payment plan. To qualify for a hardship discharge, the debtor must show the bankruptcy court proof that:

• Their financial situation has changed due to circumstances beyond their control, and it is impossible to continue with the repayment plan. Examples of a significant and lasting change could include sudden serious chronic illness, loss of income due to a death in the family, or an injury that affects income.
• There is no way to modify the plan in a way to make repayment possible. This is exceedingly rare.
• Unsecured creditors have received as much payment as they would have received in a Chapter 7 liquidation. As they have been satisfied, they can not longer demand payments from you.

The court may convert the Chapter 13 to a Chapter 7 bankruptcy. If the court grants a hardship discharge, not all debts are dischargeable. Any secured debts and debts not dischargeable in a Chapter 7 bankruptcy will remain after a hardship discharge.

Get Legal Advice From a Bankruptcy Lawyer

If you’re facing collections actions and have considered filing a bankruptcy, it’s important to understand how it will affect your lifestyle and credit report. Getting legal advice from a bankruptcy attorney can explain state laws that will impact your bankruptcy filing and help you make the best decision possible.