Chapter 13 Bankruptcy Law: Debts Discharged

Chapter 13 bankruptcy law allows a debtor to discharge most of his her debts. Of course, since Chapter 13 is “individual debt adjustment” bankruptcy, it does so by establishing a payment plan that the debtor must adhere to for three to five (usually five) years. And while it discharges most debts, there are some debts not discharged—or at least not freely and easily discharged. This makes Chapter 13 a powerful tool for many debtors, in many situations—but not all.

Chapter 13 Discharges Almost All Unsecured Debts

Chapter 13 is at its most powerful, for most people, when dealing with unsecured debt. Unsecured debt is debt that does not have some property or asset standing as collateral for it. The most common kinds of unsecured debt for most Americans—and the types that get many people in a great deal of trouble—are credit card debt (also including store accounts) and medical bills (including hospital, ambulance, therapy, and pharmaceuticals). These kinds of debts can be discharged, or eliminated, in Chapter 13, pursuant to the repayment plan approved by the court. Under that plan, the debtor will pay creditors as much as he or she can, after taking amounts necessary for cost of living, for several years, after which any remaining balance of debts will be discharged.

Certain Unsecured Debts Cannot Be Discharged

There a few debts that, as a matter of law, cannot be discharged in Chapter 13 bankruptcy (or can only be discharged with great difficulty), including:

• Certain tax debts (Uncle Sam wants his)
• Alimony and child support (if you don’t support your ex-spouse and child, who will?)
• Criminal fines (the whole idea is punishment, which is ruined by allowing the criminal to discharge the debt)
• Judgments from DUI/DWI (this is a very bad thing, which the government wants to dissuade)

• Student loans (otherwise, everyone would declare bankruptcy right after college, before they have anything to lose)

Secured Debts and Chapter 13

A secured debt is a debt which has property acting as collateral. If the debt is not paid, the property may be repossessed or foreclosed. For most Americans, mortgages, home equity lines/loans, and car loans are the most familiar forms of secured debt. Bankruptcy does not prevent a lender from foreclosing or repossessing, so unless the debtor keeps paying the debt, he or she could lose the property—though the debtor would then be off the hook for any remaining balance due. Certain secured debts, though not including a mortgage on a primary residence, can be reduced in Chapter 13 using a process called “cram down” IF the property securing the debt is now worth less than the outstanding balance on the debt.

How an Attorney Can Help

A lawyer can help you decide if bankruptcy is right for you and, if it is, which form of bankruptcy is your best option. If you file bankruptcy, the attorney can help you navigate the bankruptcy process.