Under chapter 13 bankruptcy, the debtor proposes to repay the obligations to the creditor in installment over a period of three to five years. In case the debtor’s earning is below the median of the state, then the repayment time will be for three years. The court approves the debtor more time with a valid cause, like if the debtor earns more than the state median.
Upon completion of the debt repayments, the debtor receives a discharge order from the court mentioning that the rest of the debts are erased, and the debtor is free from any loans.
Read on to know more about what exactly happens after Chapter 13 bankruptcy discharge and what are the debts covered by it.
What are the debts Chapter 13 bankruptcy discharges?
Bankruptcy law does not treat all debts equally. It has segregated the obligations into various categories, and depending on the type of debt; it is decided whether they will be discharged or not.
Debts are divided into two categories: secured and unsecured. Secured are those guaranteed by collateral or property, and creditors can claim your property if you fail to pay back the debt. Secured collateral must be surrendered before the court (usually a vehicle or house property), and long-term obligations need not be surrendered under Chapter 13 bankruptcy.
Unsecured are those for which creditors can’t claim any property as there is no collateral against it.
In unsecured, priority-based unsecured debts get paid first because these debts are nondischargeable in nature. Such debts do not get wiped off with a bankruptcy case, and you are bound to pay them. After paying back all possible debts, if some money is left over, only then do you have to pay non-priority unsecured.
How to get a chapter 13 debt discharge?
Once you make your mind to file Chapter 13, bankruptcy, keep in mind that you have to pay the maximum of the debts in a period of three to five years. You also have to make sure to comply with the following before you receive the discharge:
- Get a certificate that you have no obligations left in domestic support anymore.
- Show that you have not received any discharge in Chapter 13 bankruptcy within the last two years.
- Complete a financial management course.
Debts that can be discharged in Chapter 13 bankruptcy
The common type of nonpriority unsecured debts usually get erased by Chapter 13 bankruptcy. Debts like credit card bills, utility bills, medical bills and personal loans come under such dischargeable debts. The court will also discharge the student loan if you can prove it is an adversary proceeding and that paying the loan may create an undue hardship for you and your dependents.
Limitation of Chapter 13 bankruptcy
There are some debts that can not be erased with the help of Chapter 13 bankruptcy:
- Any debts you forgot to mention on the bankruptcy petition
- Debts due to personal injuries or death because of drink and drive
- Taxes like fraudulent income tax, business tax, and property tax which are due for the last three years
- Fines, penalties, and restitution occurred from criminal activities
- Debts incurred for luxury purchases
Chapter 13 bankruptcy helps in discharging some of the debts that Chapter 7 bankruptcy can’t erase. For instance:
- Debts refused by the court to get discharged in a previous bankruptcy.
- Debts from tax bills
- Retirement account loans also can be covered by Chapter 13 bankruptcy.
- Certain fines and penalties incurred by the government.
- Domestic support obligations like child support and alimony.
When will you receive the discharge for Chapter 13 bankruptcy?
Once you repay a certain amount of the debt with a repayment plan, you can think of your debts to be discharged. The repayment plan amount depends on the type of debt, income and expenses, and property value. After you successfully repay the amount, the court can forgive the rest of the obligations and discharge them.