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.
Unlike priority claims, 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 may be discharged in Chapter 13 bankruptcy include:
Keep in mind, however, that you will likely pay a portion of these debts through your Chapter 13 plan. The remaining balances are discharged at the end of your repayment period.
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. This means that if you stop making your payments, it can foreclose on your home or repossess your car despite your discharge.
In Chapter 13 bankruptcy, if you satisfy certain conditions, you may be able to remove a wholly unsecured junior lien (such as a second mortgage) from your house through lien stripping or reduce the outstanding balance of other secured debts (such as a car loan) with a 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.
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:
To learn more, see Debts Discharged in Chapter 13, But Not Chapter 7 Bankruptcy.
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.