Debts Discharged at the End of Chapter 13 Bankruptcy

When you complete your Chapter 13 repayment plan, you’ll receive a discharge order that will wipe out the remaining balance of qualifying debt. In fact, a Chapter 13 bankruptcy discharge is even broader than a Chapter 7 discharge because it wipes out certain debts that aren’t nondischargeable in Chapter 7 bankruptcy.

Read on to learn more about which debts get discharged at the end of Chapter 13 bankruptcy.

(Not sure which chapter to file? Start by reading What Are the Differences Between Chapter 7 and Chapter 13 Bankruptcy?)

Which Debts Get Paid in Chapter 13?

Not all debts are treated equally in bankruptcy. Each falls into a particular category that tells you whether the debt must be paid or whether it can be discharged.

The first step is determining whether a debt is secured (guaranteed by collateral) or unsecured (the creditor can’t take property if you don’t pay).

Unsecured debt is divided further into priority and nonpriority unsecured debt. Priority unsecured debts get paid before nonpriority debts and aren’t dischargeable. Nonpriority unsecured debts get paid only if money is left over and, in most cases, the debt is dischargeable in bankruptcy.

Here are a few of the significant details:

• Secured debts. If collateral secures the obligation, you must pay as agreed or surrender the collateral (usually a house or car). Long-term debts, like a 30-year mortgage, don’t need to be paid in full through the Chapter 13 plan. However, if you’re behind on payments, you’ll need to make them up in the plan. If you surrender the collateral, the debt becomes a nonpriority unsecured debt.
• Priority unsecured debts. These debts don’t go away in a bankruptcy case. In a Chapter 13 plan, you must fully pay priority claims.
• Nonpriority unsecured debts. The majority of debts discharged in Chapter 13 bankruptcy are nonpriority unsecured debts. Credit card balances, personal loans, medical bills, and utility payments fit here. It’s important to note that although student loans fall into this category, they’re not dischargeable unless you can prove in an adversary proceeding (a separate lawsuit) that it will be an undue hardship to pay the debt. Because student loans are long-term debts, you won’t have to repay them fully in your plan.

Once you’ve completed your Chapter 13 repayment plan, most remaining nonpriority unsecured debt balances will get discharged. Student loan balances are a notable exception—you’ll remain responsible for those.

Debts Qualifying for a Chapter 13 Discharge

Below are some of the most common types of nonpriority unsecured debts.

• Credit card debt. Most bankruptcy filers have some amount of credit card debt they would like to get rid of. Since credit card debt is considered nonpriority unsecured debt, any outstanding balance remaining after you complete your repayment plan will be discharged.
• Medical bills. If you had to incur debt because your medical care was not fully covered by insurance, you can discharge your medical bills through Chapter 13 bankruptcy.
• Personal loans not secured by collateral. Similar to credit card debt, any uncollateralized personal loans (such as a payday loan) also get discharged at the end of your Chapter 13.
• Older tax obligations. Most tax obligations are nondischargeable priority debts. However, certain taxes (such as older income tax balances) might be considered nonpriority debts and get discharged upon completion of your case if you didn’t commit fraud (and, in some jurisdictions, timely filed your returns). (To learn more, see Tax Debts in Chapter 13.)
• Breach of contract or negligence-related debt. If you have a judgment against you because you breached a contract (failed to pay or perform as required) or committed a negligent (accidental) act that caused personal or property harm, you can usually discharge it through Chapter 13 bankruptcy. However, be aware that Chapter 13 won’t discharge a debt for willful or malicious injury to a person.

Debts Discharged in Chapter 13 But Not Chapter 7 Bankruptcy

Below are some of the debts that will get discharged in Chapter 13 but not in Chapter 7 bankruptcy.

Willful and Malicious Property Damage

Through Chapter 13 bankruptcy you can discharge debts arising out of your willful and malicious damage to another person’s property (the damage was intentional, not accidental) but not willful injury to another person.

Debts Incurred to Pay Nondischargeable Taxes

If you pay your tax obligation using a credit card, that debt normally considered nondischargeable in a Chapter 7 bankruptcy. However, in Chapter 13 you can discharge debts you incurred to pay nondischargeable tax obligations.

Certain Debts Arising Out of Divorce or Separation Property Settlement

Domestic support obligations such as alimony or child support are always nondischargeable. However, through Chapter 13 bankruptcy, you can discharge your obligation to your spouse or former spouse for other debts assigned to you in divorce or separation proceedings.

Example. Let’s assume in your divorce decree you were assigned and required to pay a joint credit card you held with your spouse. If you don’t pay it, the credit card company can go after both you and your former spouse despite the family court order assigning the debt to you. If you file for Chapter 7 bankruptcy, you can discharge your obligation to the creditor but not to your former spouse. If your former spouse ends up having to pay the debt, he or she can come after you for that money. But Chapter 13 discharges your obligation to both the creditor and your former spouse.

Post-Petition Homeowners’ Dues

When you let go of a home in a Chapter 7 case, you’ll remain responsible for property taxes, utility bills, and homeowners’ dues until the home’s title is no longer in your name (in other words, until the lender sells it in foreclosure). Some bankruptcy courts, but not all, don’t hold you responsible for homeowners’ dues if you surrender your home as a part of a Chapter 13 plan.

Government Fines, Penalties, and Forfeitures

You’ll be able to discharge obligations you owe to a city, county, state, or other governmental agency in Chapter 13 bankruptcy, including those arising from fraud. However, you’ll have to pay any restitution or a criminal fine incurred in criminal sentencing.

Unsuccessful Bankruptcy Case Debt

If the court found that you weren’t entitled to a discharge in a previous bankruptcy case (perhaps you didn’t meet the Chapter 7 means test) or if you waived your discharge, you might be able to get rid of debt in Chapter 13. If a judge declared a particular debt nondischargeable, however, you won’t be able to get rid of it by filing another case.

Stripped or Crammed-Down Liens

Typically, bankruptcy doesn’t get rid of a creditor’s security interest (such as a mortgage or car lender’s lien) on your property. However, if certain conditions are satisfied (for instance, the debt isn’t fully secured by the collateral, and the property is worth less than what’s owed) Chapter 13 bankruptcy allows you to strip off a wholly unsecured junior lien or cram down a secured debt (reduce the loan to match the property value). The stripped or reduced portion gets reclassified as an unsecured debt and discharged at the end of the case. (To learn more, see What is Lien Stripping in Chapter 13 Bankruptcy? For more information on cramdowns, go to Cramdowns in Chapter 13 Bankruptcy: The Basics.

Other Unusual Debts

A few other debts you’ll be able to discharge include:

• debt arising from a wrongful act committed against a federally insured bank or credit union
• court fees incurred by a prisoner who files a lawsuit, motion, appeal or court document, and
• debts arising from securities law violations.

When Will You Receive the Chapter 13 Discharge?

Before you receive a discharge in Chapter 13 bankruptcy, you have to pay back a certain amount of your debts through a repayment plan. But it isn’t dependent on the total amount of debt that you owe. Rather, your repayment plan amount depends on the type of debt you have, the value of your property, your income, and your expenses.

Specifically, you’re required to pay the greater of the following to your unsecured creditors:

• your disposable income (the amount remaining after deducting allowable expenses), or
• the value of your nonexempt property (the property that you can’t protect with a bankruptcy exemption).

The bankruptcy trustee pays creditors depending on the priority of the particular debt. Certain priority debts (such as recent taxes, alimony, and child support) must be paid in full, unlike nonpriority unsecured debts.

And while it’s possible that you might pay less than what you owe (especially if you have a lot of credit card or medical debt), if all of your debt is priority debt, such as recent income tax balances and support obligations, then you’ll repay it all. (To learn more, see Unsecured Debt in Chapter 13: How Much Will You Pay?)

After you complete all plan payments, any remaining qualifying balances get wiped out. Creditors can no longer come after you to collect those debts.