Which Debts are Cancelled in Chapter 13 Bankruptcy?

Find out which debts will be discharged at the end of your Chapter 13 bankruptcy repayment plan period.

Chapter 13 bankruptcy allows you to catch up on missed mortgage or car loan payments and restructure your debts through a repayment plan. When you complete your plan, you will receive a Chapter 13 discharge that eliminates most of your remaining debts. Read on to learn more about which debts can be discharged in Chapter 13 bankruptcy.

Most Nonpriority Unsecured Debts

Unlike priority claims—debts that get paid before other obligations—most nonpriority unsecured debts receive no special treatment in bankruptcy. Unless the creditor can prove that you used fraud or false pretenses to obtain the debt, most types of nonpriority unsecured obligations are dischargeable in Chapter 13 bankruptcy.

The most common types of nonpriority unsecured debts that you can discharge in Chapter 13 bankruptcy include:

  • credit card debt
  • medical bills
  • personal loans
  • older nonpriority income tax obligations
  • utility bills, and
  • most lawsuit judgments.

Keep in mind, however, that you will likely pay a portion of these debts through your Chapter 13 plan. The court discharges the remaining balances at the end of your repayment period.

Secured Debts That Are Crammed Down or Stripped

In general, a bankruptcy discharge doesn't eliminate liens from your property. If you have a mortgage or car loan, your lender has a security interest in your property. If you stop making your payments, the lender can foreclose on your home or repossess your car despite your discharge.

Chapter 13 can help you save your house, however. If you satisfy certain conditions, you might be able to remove a wholly unsecured junior lien (such as a second mortgage) through lien stripping or reduce the outstanding balance of other secured debts (such as a car loan) with a Chapter 13 cramdown.

If you strip a junior lien from your house, it will be classified as a nonpriority unsecured debt in your bankruptcy and eliminated when you receive your discharge. When you cram down a car loan or other secured debt, the loan is split into secured and unsecured portions. You must pay off the secured portion through your repayment plan. But the unsecured part is wiped out when you complete your plan and obtain a discharge.

Debts Discharged in Chapter 13 Bankruptcy Only

A Chapter 13 bankruptcy discharge allows you to eliminate certain debts that are not dischargeable in Chapter 7 bankruptcy. The following are some of the most common debts you can wipe out in Chapter 13 bankruptcy but not in Chapter 7:

  • debts arising out of willful and malicious damage to property
  • debts used to pay nondischargeable tax obligations
  • debts incurred through a property settlement agreement in divorce or separation proceedings (keep in mind that debts characterized as support obligations such as alimony or child support are not dischargeable)
  • outstanding debts from a prior bankruptcy where the court denied your discharge
  • retirement account loans
  • homeowners association or condominium fees that became due after your filing date, and
  • certain fines and penalties owed to the government (excluding criminal fines).

Debts Chapter 13 Doesn't Cancel

You must pay off certain obligations in full through your repayment plan regardless of your income and assets. Read on to learn more about which debts you must pay back in full through your Chapter 13 plan.

Priority Debts

Certain obligations (called priority debts) receive special treatment in bankruptcy. Priority debts can't be discharged (eliminated) by filing for bankruptcy. If you have priority obligations, you must pay them off in full through your Chapter 13 repayment plan. In most cases, Chapter 13 bankruptcy provides debtors a convenient and affordable way to pay off their priority debts over a three- to five-year period. But if you have a significant amount of priority debts, your monthly plan payment must be large enough to pay them off within five years.

The most common examples of priority debts include certain tax debts and domestic support obligations such as alimony or child support. Learn about priority, secured, and unsecured debt in bankruptcy.

Mortgage Arrears

If you are behind on your mortgage payments and want to keep your house, you must pay off your mortgage arrears through your repayment plan. It’s one of the most common debts paid through a repayment plan because many debtors file for Chapter 13 bankruptcy to catch up on missed mortgage payments and save their homes. But keep in mind that you must continue to make your ongoing mortgage payments to your lender while catching up on your arrears through your plan.

If you don't plan on keeping your house, you don't have to include your mortgage arrears in your plan. You can surrender the home to the lender, instead. Also, if you have a second mortgage or another junior lien on your house that you plan to eliminate through lien stripping you don't have to pay off the arrears on that loan.

Car Loans and Other Secured Debts

You can always surrender your car and wipe out the loan. But if you want to keep the vehicle, you'll have to pay for it. Whether you must pay off your car loan or other secured debts through your Chapter 13 plan—as opposed to outside of the plan—will depend on the rules in your jurisdiction. If you want to keep your car, some bankruptcy courts will allow you to continue making payments directly to your lender outside of bankruptcy. Others might require you to pay off your car loan through your repayment plan. If you are behind on your car loan payments or want to reduce your loan balance through a cramdown, you must include your car loan in your repayment plan. Learn about Chapter 13 and the 910-day rule on car loans.

Administrative Claims

Administrative claims get paid out of your payments over the life of your plan. For instance, the Chapter 13 trustee receives a portion of your plan payment (up to 10%) as compensation for administering your case and distributing payments to your creditors. Also, if you hired an attorney, chances are you agreed to pay some of the attorneys' fees upfront and the remainder through your repayment plan.

When Do You Receive a Chapter 13 Discharge?

If you file for Chapter 13 bankruptcy, you must make monthly payments to a bankruptcy trustee for three to five years according to the terms of your repayment plan. You receive your discharge after you complete all required plan payments.

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