Find out which debts get discharged at the end of your Chapter 13 repayment period.
When you complete your Chapter 13 bankruptcy, most of your debts are wiped out by your discharge. In fact, a Chapter 13 bankruptcy discharge is even broader than a Chapter 7 discharge because it wipes out certain debts that would be nondischargeable in Chapter 7 bankruptcy.
When you complete your Chapter 13 bankruptcy, most of your debts are wiped out by your discharge. In fact, a Chapter 13 bankruptcy discharge is even broader than a Chapter 7 discharge because it wipes out certain debts that would be nondischargeable in Chapter 7 bankruptcy. Read on to learn more about which debts get discharged at the end of Chapter 13 bankruptcy.
When Do You Receive a Discharge in Chapter 13 Bankruptcy?
In Chapter 13 bankruptcy, you have to pay back a certain amount of your debts through a repayment plan. How much you pay back depends on your debts as well as your income and expenses. Certain priority debts (such as recent taxes, alimony, and child support) must be paid off in full. However, nonpriority unsecured debts do not have to be paid in full, or even at all.
The amount you must pay nonpriority unsecured creditors depends on your income and expenses but it is usually much less than the outstanding balance of the debt. After you complete all plan payments, any remaining balance is discharged and the creditor can no longer come after you to collect the debt. (To learn more, see Unsecured Debt in Chapter 13: How Much Will You Pay? )
Below, we discuss which debts get discharged at the completion of your Chapter 13 bankruptcy.
Nonpriority Unsecured Debts
The majority of debts discharged in Chapter 13 bankruptcy consist of nonpriority unsecured debts. Below are some of the most common types of nonpriority unsecured debts.
Credit Card Debt
Most bankruptcy filers have some amount of credit card debt they would like to get rid of. Since credit card debt is considered nonpriority unsecured debt, any outstanding balance remaining after you complete your repayment plan is discharged.
Medical debt is one of the main reasons people file for bankruptcy relief. If you had to incur debt because your medical care was not fully covered by insurance, you can discharge your medical bills through Chapter 13 bankruptcy.
Similar to credit card debt, any personal loans you took out also get discharged at the end of your Chapter 13. However, keep in mind that if you pledged an asset as collateral when you took out the loan, Chapter 13 bankruptcy may discharge your personal liability on the loan but the creditor can usually repossess the collateral if you don’t pay.
Older Tax Obligations
Most tax obligations are nondischargeable priority debts. However, certain taxes (such
as older income tax obligations) may be considered nonpriority debts and get discharged upon completion of your case if you timely filed your returns and did not commit fraud. (To learn more, see Tax Debts in Chapter 13. )
Debts Related to Breach of Contract or Negligence
If you have a judgment against you because you breached a contract or committed a negligent act, you can usually discharge it through Chapter 13 bankruptcy. However, be aware that Chapter 13 will not discharge a debt for willful or malicious injury to a person.
Stripped or Crammed Down Liens
Normally, bankruptcy does not get rid of a creditor’s security interest (such as a mortgage or car lender’s lien) in your property. However, if certain conditions are satisfied, Chapter 13 bankruptcy allows you to strip junior liens or cram down secured debts.
When a lien is stripped it is treated as an unsecured debt and discharged when you complete your Chapter 13 plan. Similarly, when you cram down a secured loan, you pay the creditor what the collateral is worth and the remaining portion of the debt is classified as unsecured and discharged.
Debts Discharged in Chapter 13 But Not Chapter 7 Bankruptcy
As we discussed, Chapter 13 bankruptcy offers a broader discharge than Chapter 7. Below, we discuss some of the debts that will get discharged in Chapter 13 but not in Chapter 7 bankruptcy.
Willful and Malicious Damage to Property
Through Chapter 13 bankruptcy you can discharge debts arising out of your willful and malicious damage to another person’s property (but not willful injury to another person).
Debts Incurred to Pay Nondischargeable Taxes
If you pay your tax obligation using a credit card, that debt is normally also considered nondischargeable and you can’t wipe it out by filing Chapter 7 bankruptcy. However, in Chapter 13 you can discharge debts you incurred in order to pay nondischargeable tax obligations.
Certain Debts Arising Out of Divorce or Separation Property Settlement
Domestic support obligations such as alimony or child support are always nondischargeable. However, through Chapter 13 bankruptcy, you can discharge your obligation to your spouse or former spouse for other debts assigned to you in divorce or separation proceedings.
Example. Let’s assume in your divorce decree you were assigned and required to pay a joint credit card you held with your spouse. If you don’t pay it, the credit card company can go after both you and your former spouse despite the family court order assigning the debt to you. If you file for Chapter 7 bankruptcy you can discharge your obligation to the creditor but not to your former spouse. If your former spouse ends up having to pay the debt, he or she can come after you for that money. But a Chapter 13 discharges your obligation to both the creditor and your former spouse.