Should You File for Chapter 13 Bankruptcy After a Chapter 7 Discharge?

Filing for Chapter 13 bankruptcy following a Chapter 7 discharge can help you pay off nondischargeable debts.

You could wipe out all of your qualifying debt in Chapter 7, such as credit card bills, personal loans, and medical balances, and still find yourself left with debt. Filing for Chapter 13 can help. You can keep the creditors at bay while paying down the obligations that don’t go away in bankruptcy, such as a tax bill, back child support, mortgage arrearages, or a late car payment.

Read on to learn about filing a Chapter 13 after receiving a Chapter 7 discharge—the order that eliminates qualifying debt—and whether it might be the right choice for you.

What to Expect From a Chapter 7 Discharge

Chapter 7 bankruptcy erases some, but not all debt. For the most part, you’ll know which debt will go away based on whether it falls into a secured, unsecured, or priority category—but there are exceptions. The debts you won’t be able to wipe out are nondischargeable debts.

  • Unsecured debt. Chapter 7 will get rid of your credit cards, personal loans, medical bills, and other general unsecured debt. But you won’t be able to extinguish student loans (also general unsecured debt) without proving that you can’t pay them in the future.
  • Secured debt. You can get rid of secured debt but only if the collateral you put up to guarantee your payment returns to the bank. If you intend to keep a house, car, or other secured property, you must continue making payments to the lender.
  • Priority debt. You also won’t be able to wipe out priority debt. A priority debt is an obligation that lawmakers found important enough to prevent it from being discharged (erased) in bankruptcy. It also gets paid before general unsecured debt. Examples of priority debt include some payments owed to employees, domestic support arrearages, and many tax obligations.

More about debt discharged in Chapter 7 bankruptcy.

Filing for Chapter 13 After a Chapter 7 Discharge Can Help

If you file a Chapter 13 bankruptcy shortly after receiving a Chapter 7 discharge, you’ll be filing what’s informally known as a “Chapter 20” bankruptcy.

Keep in mind that rules exist that prevent you from erasing debt by filing multiple bankruptcies in a short period, so you won’t receive another discharge. Even so, Chapter 13 has benefits that aren’t available in Chapter 7.

The following are some of the most important reasons you might want to file for Chapter 13 bankruptcy after a Chapter 7 discharge.

You’re Behind on Your Mortgage or Car Loan Payments

Chapter 7 doesn’t have a mechanism that will allow you to save your home. The only way to remain in your house in Chapter 7 is if:

Here’s why.

Your mortgage and car loan are debts secured by your property. If you default on the loan, the lender can foreclose on your house or repossess your car because a Chapter 7 discharge only eliminates your personal liability for these debts. It doesn’t get rid of the lender’s security interest (lien). If you stop making your payments, your lender has the right to take back the property even after your Chapter 7 discharge.

However, if you are facing foreclosure or repossession, filing for Chapter 13 bankruptcy can help you save your home or vehicle. In Chapter 13, you can catch up on missed payments through a three- or five-year repayment plan.

To learn more, see What Happens to Secured Debt in Chapter 13 Bankruptcy?

You Have Priority Tax Obligations

Recently incurred tax obligations are priority debts in bankruptcy. As a result, they are not dischargeable in a Chapter 7 case. However, if you file for Chapter 13 bankruptcy, you can pay them off through your repayment plan. You’ll also enjoy the benefit of the automatic stay—the order that keeps your creditors from collecting from you while you’re in bankruptcy.

You Owe Back Alimony or Child Support

Domestic support obligations such as alimony and child support are also priority debts that can’t be discharged in bankruptcy. However, if you are behind on your payments, you can catch up on these obligations through your Chapter 13 plan.

Meet With a Bankruptcy Lawyer

Keep in mind that not all courts allow Chapter 20 bankruptcies. You’ll likely want to consult with a local bankruptcy lawyer in your area.

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