Debts Discharged at the End of Chapter 13 Bankruptcy

When you complete your Chapter 13 repayment plan, you'll receive a discharge order erasing the remaining balance of qualifying debts—and because a Chapter 13 bankruptcy discharge is broader than a Chapter 7 discharge, it wipes out more debts than Chapter 7 bankruptcy. Read on to learn which debts get discharged at the end of Chapter 13 bankruptcy.

Debts Qualifying for a Chapter 13 Discharge

Below are some of the most common types of debts you can erase in Chapter 13. Typically, you'll pay some portion—often a small amount—and the Chapter 13 discharge will erase the balances remaining on these accounts at the end of the Chapter 13 plan.

• Credit card debt. Most bankruptcy filers have some amount of credit card debt they want to eliminate. Most credit card debt is considered nonpriority unsecured debt. Your discharge will include any outstanding balance remaining on these debts after you complete your repayment plan.
• Medical bills. You can discharge any medical bills not covered by insurance using Chapter 13 bankruptcy.
• Personal loans not secured by collateral. Like credit card debt, any uncollateralized personal loans (such as a payday loan) are discharged at the end of Chapter 13.
• Older unsecured tax obligations. Most tax obligations are nondischargeable priority debts. However, certain taxes, such as older income tax balances, might be considered nonpriority debts and be discharged upon completion of your case if you didn't commit fraud and, in some jurisdictions, timely filed your returns. Also, a taxing agency placing a property lien creates a secured debt (more below). Learn about tax debts in Chapter 13.
• Breach of contract or negligence-related debt. If you lost a lawsuit because you "breached a contract" by failing to pay or perform as required or committed an accidental or "negligent" act that caused personal or property harm, you can usually discharge the debt through Chapter 13 bankruptcy. However, be aware that Chapter 13 won't discharge a debt for willful or malicious injury to a person. Also, a recorded money judgment creates a lien against property, creating a secured debt (more below). Learn about judgment liens in bankruptcy.

Debts Discharged in Chapter 13 But Not Chapter 7 Bankruptcy

Below are some debts that will get discharged in Chapter 13 but not in Chapter 7 bankruptcy. Some Chapter 7 qualified debtors file Chapter 13 because of the expanded discharge list.

Willful and Malicious Property Damage

You can discharge debts arising from "willful and malicious" damage—intentional, not accidental—to another person's property.

Debts Incurred to Pay Nondischargeable Taxes

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

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 responsibility for property-related debts assigned to you in divorce or separation proceedings.

Example. In your marital property division agreement, you received the rental cabin in exchange for an agreement to pay $150,000 in ten years. Because the $150,000 debt was not for support, it would be dischargeable in Chapter 13.

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 can 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 or if you waived your discharge, you might be able to get rid of debt in Chapter 13. However, if a judge declared a particular debt nondischargeable, you won't be able to get rid of it by filing another case.

Stripped or Crammed-Down Liens

Typically, bankruptcy doesn't eliminate a creditor's security interest (such as a mortgage or car lender's lien) on your property. However, if certain conditions are satisfied, you can remove a junior mortgage on a residential home or reduce the amount owed on a vehicle or rental property to the actual value of the property. The stripped mortgage or reduced portion gets reclassified as an unsecured debt and discharged at the end of the case.

Learn more in 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.

Debts Discharged in Chapter 13 Bankruptcy Unless the Creditor Wins a Lawsuit

Some debts are discharged in Chapter 13 unless the creditor prevails in a bankruptcy lawsuit called an "adversary proceeding." These debts include restitution or damages awarded in a civil case for willful or malicious actions causing personal injury or death and debts related to fraud or a breach of fiduciary duty.

Debts That Don't Qualify for Discharge in Chapter 13

Support obligations, many tax debts, and other debts the bankruptcy court determines aren't dischargeable must be paid in full in the plan. Student loan obligations also aren't dischargeable unless the debtor files an action proving it would be an undue hardship to remain responsible for paying the loans.

Although they aren't typically dischargeable, student loans don't need to be paid in full through the plan. Learn about debts that survive Chapter 13 bankruptcy.

When Will You Receive the Chapter 13 Discharge?

Before receiving a discharge in Chapter 13 bankruptcy, you must pay back a certain amount of your debts through a three- or five-year repayment plan. How much you pay isn't dependent on the total debt you owe but rather depends on your debt type, property value, income, and expenses.

As a rule of thumb, you'll pay the greater of the following to your unsecured creditors:

• your "disposable income," which is the amount remaining after deducting allowable expenses (nonpriority unsecured creditors share your disposable income)
• the total amount of your priority unsecured debts that require full payment (support obligations and recently incurred tax debt are the most common), or
• the value of your "nonexempt property," the property you can't protect with a bankruptcy exemption pursuant to the "best interest of creditors" rule (you can deduct what it would have cost to sell the property had you filed for Chapter 7).

Having large amounts of debt in the last two categories and insufficient income to cover it often prevents someone from proposing a "confirmable" Chapter 13 plan the bankruptcy court will approve. Learn more about paying secured and unsecured debts in Chapter 13 bankruptcy.

Which Debts Get Paid in Chapter 13?

Not all debts are treated equally in bankruptcy. Each debt falls into a particular category, which can help explain whether you must pay a debt fully through your Chapter 13 plan or discharge a portion.

The three debt categories are secured debts, priority unsecured debts, and nonpriority unsecured debts. A Chapter 13 repayment plan must outline how the debtor will pay each of these three debt types, and the debtor's plan must comply with bankruptcy payment rules.

Just because a debt falls into a particular category won't tell you conclusively whether the debt is or isn't dischargeable. Most categories have exceptions and conditions, making drafting a Chapter 13 plan somewhat complicated.

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

Secured Debts in Chapter 13 Bankruptcy

If collateral secures the obligation—for instance, a house usually secures a mortgage and a car an auto loan—you must pay the monthly payment and interest as agreed or surrender the collateral to the lender. Creditors who have placed a valid lien on property—for instance, a taxing agency—also have secured debts.

Long-term debts, like a 30-year mortgage, don't need to be paid in full through the Chapter 13 plan. If you're behind on payments, you must make them up in the plan.

However, suppose you "surrender" the house, car, or other collateral by returning it to the lender. In that case, any "deficiency" balance—the difference between what the bank gets at auction and what you owe—becomes an unsecured debt.

In a nutshell, you must be able to pay the following to keep secured property:

• You must pay any secured debt with less than 60 months of remaining payments in full—including late payments and fees.
• You must pay the monthly payments of any secured debts with more than 60 months of remaining payments, plus make up any late payments. You'll continue paying the remaining balance at the end of the Chapter 13 plan to keep the property.

Debtors can usually pay the monthly payments outside the plan—which is cheaper because it avoids the trustee's fee, which can be up to 10%. Also, most jurisdictions require debtors to pay arrears through the plan. In some jurisdictions, debtors who are behind when they file must pay the monthly payment and arrears through the plan.

Learn about keeping a house in Chapter 13 bankruptcy.

Unsecured Debts in Chapter 13 Bankruptcy

Unsecured debts include all obligations not guaranteed by collateral or secured by a lien. Unsecured debt includes credit card balances, medical debt, utility bills, leases, back rent, and gym memberships.

How much a debtor must pay toward an unsecured debt in a Chapter 13 plan depends on the debt's importance or priority. Most unsecured debts are paid in full through the plan or are partially paid and discharged at the end of the case. However, a common exception is student loans, which aren't paid in full through the plan, and the balances aren't discharged at the end of the case.

Priority Unsecured Debts

These unsecured debts don't get discharged in Chapter 13. In a Chapter 13 plan, you must fully pay priority claims. Priority claims include, among others, recent income taxes, past-due alimony, and child support.

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 fall into this category.

Often, the Chapter 13 plan doesn't pay nonpriority debts in full. Instead, creditors must share whatever portion of the debtor's discretionary income remains after priority debts receive full payment. That's what the phrase "pay creditors pennies on the dollar in bankruptcy" refers to.

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.