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, 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:

  • 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 remaining balances are discharged 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. 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.

For more information on how to remove liens from your house, see  Removing a Second Mortgage in Bankruptcy. To learn more about how cramdowns work, see  Cramdowns in Chapter 13 Bankruptcy.

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).

To learn more, see  Debts Discharged in Chapter 13, But Not Chapter 7 Bankruptcy.

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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