A Chapter 13 discharge is different from the discharge you receive in Chapter 7. When Chapter 13 is the best option for your particular debt circumstances, you should review which debts will be discharged with your bankruptcy attorney. The rules are complex, but some of the benefits of a Chapter 13 discharge may be great for your situation.
The Chapter 13 discharge will wipe out most of your debts when you complete your Chapter 13 plan payments. This discharge is even broader than a Chapter 7 discharge because it gets rid of some debts that are not discharged in Chapter 7!
In Chapter 13 bankruptcy, of course, you have to pay back some amount of your obligations through a payment plan over 3 to 5 years. The amount you pay back will depend on your debts as well as your income and expenses. But once you complete your payment plan, you are entitled to the full benefit of your Chapter 13 discharge.
The Chapter 13 discharge releases you from all debts that are “provided for” by your plan or that are “disallowed”—with only limited exceptions. This means that claims which are “provided for” (covered by your plan, whether paid in full or only paid in part) will no longer be allowed to sue or to continue any legal or other action against you to collect the discharged obligations.
So what are the limited exceptions to this broad Chapter 13 discharge? The exceptions include:
- Certain long term obligations (such as a home mortgage).
- Debts for alimony or child support.
- Certain taxes.
- Debts for most government funded or guaranteed educational loans or benefit overpayments.
- Debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs. (But see the limitation below.)
- Debts for restitution or a criminal fine included in a sentence on the debtor’s conviction of a crime.
For the above types of debt, if not fully paid in a Chapter 13 plan, the debtor will still be responsible after the Chapter 13 case is completed.
On the other hand, some debts that are not discharged in a Chapter 7 case will be fully discharged by the Chapter 13 discharge even if these debts are not “paid in full” under the plan payments provided to creditors. These types of debt include:
- Debts for money or property obtained by false pretenses.
- Debts for fraud or defalcation while acting in a fiduciary capacity.
- Debts for willful and malicious injury to property (as opposed to a person).
- Debts incurred to pay nondischargeable tax obligations.
- Debts arising from property settlements in divorce or separation proceedings.
Of course, most other debts will also be fully discharged in Chapter 13, including general unsecured debts, credit cards, medical bills, personal loans, older tax obligations, debts arising from negligence claims or breach of contract, and “stripped” or “crammed down” debts (debts for property liens that were properly removed or “stripped” from your property because there was no equity available).
So if Chapter 13 is a possibility for your situation, you can see that you have much to discuss and consider when you meet with your bankruptcy lawyer. We offer a free consultation and analysis of your rights and options. Feel free to call us at (800) 551-7922.