What Debts Can Be Discharged in Chapter 13 Bankruptcy?
Chapter 13 bankruptcy provides a unique opportunity for those facing financial hardship to restructure their debt and work toward achieving long-term financial stability. Unlike Chapter 7, which involves liquidating assets that cannot be protected by the Bankruptcy Code's Exemptions to pay creditors (see other article in this website under the Bankruptcy Overview section entitled "Bankruptcy Exemptions"), Chapter 13 allows you to pay back creditors using a three- to five-year repayment plan.
Once you complete this repayment period, certain debts may be eligible for discharge by the Bankruptcy Court, which can offer you a fresh financial start. But what exactly does this discharge cover? The Law Offices of Marc G. Alster is experienced in helping clients file for Chapter 7 and 13 bankruptcy and can help you determine which debts may be eligible for discharge.
What Is a Chapter 13 Bankruptcy Discharge?
In a Chapter 13 bankruptcy proceeding, the Bankruptcy Court's discharge eliminates the legal obligation to pay general unsecured debts. To procure the Court's discharge order, debtors must complete a Chapter 13 repayment plan approved by the Bankruptcy Court.
Unlike a Chapter 7 discharge, which is more limited, a Chapter 13 discharge can potentially apply to a broader range of debts. However, it is important to note that there are still limitations and certain debts that cannot be discharged in either a Chapter 7 or a Chapter 13 case.
A Chapter 13 Discharge Order grants debtors relief from dischargeable financial burdens while requiring debtors to be accountable for providing at least partial repayment of their general unsecured obligations, if possible. It is designed for those debtors who have regular incomes and can commit to a structured repayment plan.
Debts That May Be Discharged in Chapter 13 Bankruptcy
In a Chapter 13 bankruptcy case, a discharge may be granted for multiple types of debt. However, it's important to note that you may need to pay a portion of your debt as part of your Chapter 13 repayment plan. The types of debt that may be discharged in Chapter 13 bankruptcy include the following.
Unsecured Debts
Unsecured debts not backed by collateral, are among the most common debts discharged in a Chapter 13 bankruptcy case. These include but are not limited to the following:
Credit card debt: This pertains to balances owed on credit cards, including late fees, interest and related attorney fees.
Medical bills: This includes costly medical expenses, including hospitalization, medication, or therapy and related late fees, interest and/or attorney fees.
Personal loans: This includes unsecured personal loans, such as payday loans or installment loans.
Utility bills: This pertains to outstanding balances on utility accounts incurred before filing for bankruptcy protection.
These unsecured debts represent a significant portion of the financial strain faced by many individuals, and their discharge can be a tremendous relief.
Debts Arising from Breached Contracts
As with a Chapter 7 case, obligations arising from breached leases or contracts are also dischargeable in a Ch 13 bankruptcy filing, depending on the nature of the contract and the circumstances under which it was breached. For instance, certain obligations under a terminated lease for an apartment may qualify for discharge.
Certain Tax Debts
While not all tax liabilities are dischargeable, Chapter 13 offers more flexibility than Chapter 7 for addressing non-dischargeable income tax debt. Income tax debts may be discharged in both Chapter 7 and 13 proceedings if they meet specific requirements, such as being at least three years old and fulfilling other specific filing and assessment conditions.
Debts from Divorce Decrees or Settlement Agreements
Some debts arising from divorce proceedings, such as property settlements, may be dischargeable in Chapter 13. However, child support and alimony obligations are not dischargeable under any circumstances in either a Chapter 7 or 13 case.
Debts That Are Generally Non-Dischargeable
While there are some types of debts that can be discharged only in a Chapter 13 case; most obligations are never dischargeable - either Chapter 7 or Chapter 13 proceeding. These typically include the following:
Child support and alimony: Family court-ordered support obligations must be paid in full during the repayment plan and are not subject to discharge.
Secured debts: Secured debts, protected by collateral such as a car or a home, are generally not discharged in Chapter 13 bankruptcy unless the underlying asset is surrendered or the repayment terms can be modified during the bankruptcy process.
Most tax liabilities: Although select income taxes can qualify for discharge (such as substantive income taxes due more than 3 years before filing for bankruptcy protection), other tax liabilities, such as payroll taxes and penalties for fraud, are not dischargeable.
Student loans: Federal and private student loans are generally not dischargeable unless the debtor can prove "undue hardship," which is difficult and can be cost-prohibitive to establish.
Fines and penalties: Criminal restitution, Court fines, and penalties imposed by government agencies are excluded from discharge.
If you are considering filing for Chapter 13 bankruptcy, it's crucial to understand which debts may be dischargeable and which may not. Consulting with a knowledgeable bankruptcy attorney can help you better understand the Chapter 13 bankruptcy process and maximize the benefits of a Chapter 13 discharge.
Chapter 13 Bankruptcy FREQUENTLY ASKED QUESTIONS "FAQ
How long does the Chapter 13 bankruptcy process take?
The length of time it takes to complete a Chapter 13 bankruptcy varies by case and the repayment plan you submit for approval from the Bankruptcy Court. Typically, these types of bankruptcy cases take anywhere from three to five years to complete.
Will I lose my property in a Chapter 13 bankruptcy?
Unlike Chapter 7, which liquidates assets that cannot be protected by the Bankruptcy Codes exemptions to pay creditors, Chapter 13 allows you to keep your property as long as you are able to make the necessary payments to assure that your unsecured creditors would receive if your non-exempt assets were liquidated in a Chapter 7 case according to the terms of your Chapter 13 repayment plan.
Can I file for Chapter 13 bankruptcy protection if I have filed for bankruptcy before?
Yes, you can file for Chapter 13 bankruptcy again even if you have previously filed for another type of bankruptcy. However, to procure a 2nd Chapter 13 Bankruptcy Court Discharge Order, you must wait at least two years from the filing date of your previous Chapter 13 case to file again. If you previously received a Chapter 7 Discharge Order, you must wait 4 years from the Chapter 7 filing to procure a subsequent Chapter 13 Discharge Order.
Consult an Experienced Bankruptcy Attorney Today
If you are considering Chapter 7 or Chapter 13 bankruptcy and have questions about which debts can be discharged, contact The Law Office of Marc G. Alster. Based in Hackensack, New Jersey, the firm serves clients in Bergen County, Passaic County, Hudson County, Essex County, Union County, Morris County and Sussex County in New Jersey as well as Rockland County, Westchester County, Orange County, and Putnam County in New York.
The Law Offices of Marc G. Alster is dedicated to helping individuals achieve financial stability through compassionate and knowledgeable legal counsel. Marc G. Alster has personally been providing advice and helping debtors for over 30 years. Schedule a consultation today to discuss your options and begin your path to financial recovery.