If you file for Chapter 13 bankruptcy and complete your repayment plan, the court will enter a bankruptcy discharge in your case. A Chapter 13 bankruptcy discharge eliminates your personal liability for most types of debt. But there are certain debts your discharge will not wipe out. Read on to learn more about which debts survive Chapter 13 bankruptcy. (Learn about Chapter 13 bankruptcy, how it works, what the repayment plan is, and more.)
For more information on which debts you can eliminate in Chapter 13 bankruptcy, see our topic area on The Bankruptcy Discharge.
The following are some of the most common types of debt a Chapter 13 bankruptcy discharge will not eliminate:
Congress has decided that certain debts are too important to be wiped out in bankruptcy. These are called priority debts. If you file for Chapter 13 bankruptcy, your discharge will not eliminate your responsibility to pay back your priority obligations. In fact, you must pay off all of your priority claims in full through your repayment plan before you can receive a discharge in Chapter 13 bankruptcy.
The most common types of priority claims include:
While the priority claims listed above are the most common in consumer bankruptcy cases, there are several other types of obligations that have priority status in bankruptcy. (For more detailed information on all priority claims, see What Is a Priority Claim in Bankruptcy?)
If a creditor has a lien on your property, it holds a secured debt in your bankruptcy. The most common types of secured debts include your mortgage and car loan. A Chapter 13 bankruptcy discharge doesn’t automatically eliminate liens from your property.
While there are ways to reduce or remove liens from your property in Chapter 13 bankruptcy, you must satisfy certain requirements first. Unless you take the necessary steps to actively remove a lien from your property, that lien will survive your bankruptcy discharge. This means that the creditor will have a right to enforce the lien and foreclose on or repossess the asset after bankruptcy if you fail to pay the loan.
To learn more about how to reduce the principal balance of a secured loan in bankruptcy, see How a Cramdown Works in a Chapter 13 Bankruptcy Case. For more information on removing junior liens from your property, see How to Strip a Second Mortgage or HELOC in Chapter 13.
If you owe any criminal fines, restitution, or penalties for committing a crime, they will not be discharged in your Chapter 13 bankruptcy.
If your willful or malicious actions cause personal injury or death to another person, you can’t eliminate any debts arising from those actions in Chapter 13 bankruptcy. But keep in mind that debts you incur as a result of causing willful and malicious damage to someone’s property may be discharged in Chapter 13 bankruptcy (but not in a Chapter 7).
If you don’t list a creditor in your bankruptcy schedules, the court will not send notice of your case to that creditor. In most cases, if you fail to disclose a debt in your bankruptcy, it will not get discharged unless the creditor otherwise had notice or knowledge of your bankruptcy. This is especially true if that creditor was entitled to a distribution through your repayment plan.
If the unlisted creditor would not have received anything in your Chapter 13 case even if it had notice, some courts might adopt a “no harm, no foul” approach and consider the debt discharged. But each jurisdiction has its own rules regarding unlisted debts. So it’s in your best interest to list and provide notice to all of your creditors in bankruptcy.
If you want to eliminate a student loan in bankruptcy, you must prove to the court that paying it will be an undue hardship on you. In general, it’s difficult to establish undue hardship. Traditionally, debtors have had to show extreme and persistent poverty or a permanent medical condition that substantially inhibits earning potential. However, some courts are becoming less stringent and have discharged student loans for bankruptcy filers that are young, employed, and able-bodied -- although they still need to prove that repaying the loans would be a hardship. Even if you have a good case, your student loan lender will likely put up a fight. Check with a local bankruptcy attorney to learn the lay of the land in your jurisdiction.
To learn more, see Student Loans in Bankruptcy: The Brunner Test.
If you incur any debts through fraud or false pretenses (such as by lying on your loan application), you can’t discharge those debts in bankruptcy. But fraudulent debts are not automatically nondischargeable. If a creditor wants to argue that its debt should not be discharged, it must file an adversary proceeding (essentially a lawsuit) in your bankruptcy case and prove that you committed fraud when you incurred the debt. (Learn more about adversary proceedings in bankruptcy.)