by: Baran Bulkat, Attorney
Chapter 13 bankruptcy allows debtors to wipe out certain types of debt that are not dischargeable in a Chapter 7. This means that if you file for Chapter 13 bankruptcy, you may be able to eliminate more of your debts than you can in a Chapter 7. Read on to learn more about the kinds of debts you can discharge in Chapter 13 bankruptcy but not in Chapter 7 bankruptcy.
This article covers some important, but very specific debts. For more information on common debts you can get rid of in bankruptcy, see the following articles:
Debts You Can Discharge in Chapter 13 Bankruptcy Only
The following are the most common types of debt a Chapter 13 discharge will eliminate but a Chapter 7 discharge will not.
Debts Arising Out of Willfully and Maliciously Damaging Property
If you willfully or maliciously damage another person’s property, you can’t discharge any debts that result from your actions in Chapter 7 bankruptcy. But you can discharge debts related to willful and malicious damage to property in Chapter 13 bankruptcy. However, keep in mind that you can’t eliminate any debts arising out of your willful or malicious acts that cause personal injury or death in Chapter 7 or Chapter 13 bankruptcy.
Debts You Incur to Pay Nondischargeable Tax Obligations
If you incur a debt to pay off nondischargeable tax obligations (such as paying your tax liability with a credit card), you can discharge that debt in Chapter 13 bankruptcy but not in Chapter 7.
Certain Debts Incurred As a Result of Divorce or Separation Proceedings
If you incur debts (other than domestic support obligations) to your spouse, former spouse, or child through a divorce decree, property settlement, separation agreement, or other related proceeding, you can discharge them only in Chapter 13 bankruptcy. These typically include debts assigned to you in the course of divorce or separation proceedings. But remember that domestic support obligations such as alimony or child support are not dischargeable in Chapter 7 or Chapter 13 bankruptcy.
Example: If a family court judge requires you to pay a joint credit card in your divorce decree, you have an obligation to your former spouse to pay off that debt. If you don’t pay off the card, the credit card company can sue your former spouse to collect the debt despite the divorce decree. If your spouse ends up paying the debt, he or she can come after you for reimbursement. In Chapter 7 bankruptcy, you can wipe out your personal liability to the credit card company for the joint debt – but not your obligation to your spouse under the divorce decree. But a Chapter 13 discharge wipes out your obligation to your spouse as well as to the credit card company.
Debts Denied Discharge in a Prior Bankruptcy
If you filed for bankruptcy previously and the court denied your discharge, you can’t eliminate those same debts in a subsequent Chapter 7 case. However, you may be able to discharge the debts from your prior bankruptcy in Chapter 13 bankruptcy.
Retirement Account Loans
Any money you borrow from your retirement plan is essentially a debt you owe to yourself. These debts are dischargeable in Chapter 13 bankruptcy but not in Chapter 7. However, if you continue to make your loan payments during bankruptcy, you can reduce your disposable income and the amount you must pay unsecured creditors through your repayment plan. Because of this, as a practical matter, it is typically in your best interest to continue your retirement loan payments in Chapter 13 bankruptcy.
Post-Petition Homeowners or Condominium Association Fees
Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy allows you to discharge condominium or homeowners association (HOA) dues that are incurred after your filing date. But keep in mind that your HOA typically has a lien on your property for any outstanding fees despite your discharge. This means that if you want to keep your house, you should continue paying all of your HOA fees.
Certain Fines and Penalties Owed to the Government
Chapter 7 bankruptcy doesn't eliminate most types of fines and penalties you owe to governmental entities. But fines and penalties payable to the government (other than criminal fines) are generally dischargeable in Chapter 13 bankruptcy.