Chapter 13 wipes out most nonpriority unsecured debts, like credit cards and medical bills, once your plan ends, but priority and secured debts must be repaid.
Most of the debt you owe disappears once you finish your Chapter 13 plan. Credit card balances, medical bills, personal loans, and similar nonpriority unsecured debts are discharged, but priority debts and secured obligations like your mortgage or car loan aren't. (11 U.S.C. § 1328.)
Chapter 13 lets you reorganize your debts and catch up on missed mortgage or car payments through an affordable repayment plan, typically lasting three to five years. Once you've made every payment your plan requires, you receive a bankruptcy discharge wiping out whatever's left on your qualifying debts, and most filers walk away owing nothing more than a mortgage payment, school loans, and a handful of other, rarer debts.
In This Article
- What Debt Is Forgiven in Chapter 13 Bankruptcy?
- Debts You Must Repay in Chapter 13 Bankruptcy
- How Much Debt Do You Pay Back in Chapter 13 Bankruptcy?
- Can You Pay Less on Secured Debts in Chapter 13 Bankruptcy?
- How Do You Receive a Chapter 13 Bankruptcy Discharge?
- What Is a Chapter 13 Hardship Discharge?
- What Happens After a Chapter 13 Discharge?
- Do You Need a Lawyer for Chapter 13 Bankruptcy?
- Next Steps for Your Chapter 13 Case
What Debt Is Forgiven in Chapter 13 Bankruptcy?
Chapter 13 forgives every debt you could wipe out in Chapter 7, plus a few more Chapter 7 can't touch. Here's the full breakdown.
Nonpriority Unsecured Debts You Can Wipe Out in Chapters 7 and 13
Nonpriority unsecured debts are the easiest to eliminate in Chapter 13 because the law gives them no special treatment. You can typically wipe out:
- credit card balances
- medical debt
- personal loans
- older income taxes that qualify as nonpriority debts
- most lawsuit judgments (though a Chapter 13 discharge won't erase debts from willfully and maliciously injuring someone), and
- outstanding utility bills.
That's not the whole list, though, and don't assume you'll pay nothing toward these debts along the way. A few debts, like those for willfully and maliciously injuring someone or for personal injury or death caused by drunk driving, stay nondischargeable no matter which chapter you file. (11 U.S.C. § 523.)
Debts You Can Eliminate in Chapter 13 Bankruptcy But Not in Chapter 7
Chapter 13's discharge is broader than Chapter 7's and is sometimes called a "super discharge." You can wipe out debts like:
- debts for willfully and maliciously damaging someone’s property
- debts you incurred to pay nondischargeable tax obligations
- debts from a divorce decree, separation agreement, or property settlement that aren’t support payments (alimony and child support are never dischargeable, in either chapter)
- debts included in a prior bankruptcy where the court denied your discharge
- 401(k) or other retirement account loans
- HOA fees that came due after you filed, and
- certain government fines and penalties (criminal fines don’t count).
Debts You Must Repay in Chapter 13 Bankruptcy
Don't expect to pay pennies on the dollar for everything you owe. You must pay some debts in full, no matter how tight your budget is. You must fully pay priority debts, like back support obligations and recent tax debt, through your plan. (11 U.S.C. § 1322.)
You'll also need to fully pay past-due amounts on secured debts, like your mortgage and car loan, and keep making the regular monthly payment. Otherwise, you can hand the property back to the lender.
The reason for this is that a secured creditor holds a lien on the property you pledged as collateral. Bankruptcy doesn't erase that lien, so if you don't pay, the creditor can still foreclose or repossess. Miss payments, and you lose the property.
How Much Debt Do You Pay Back in Chapter 13 Bankruptcy?
Most filers repay only part of what they owe. Paying back 100% is possible, but it's rare, and it mostly happens with high-income filers. How much you'll pay toward nonpriority unsecured debt depends on your income and how much qualifying debt you have.
Nonpriority unsecured creditors split your “disposable” income, which is the amount left after you cover other monthly bills and required Chapter 13 payments. Depending on what you have available, they might collect anywhere from 0% to 100% of what you owe. (11 U.S.C. § 1325.)
Example. Holly has $312 left each month after rent, utilities, food, her car payment, and other allowed expenses. Each month, the Chapter 13 trustee assigned to her case divides that $312 among her nonpriority unsecured creditors on a “pro rata,” or percentage, basis.
If you want to know what you'd actually pay each month, you can calculate your monthly Chapter 13 payment before you file.
Can You Pay Less on Secured Debts in Chapter 13 Bankruptcy?
Yes. You can reduce what you owe on some secured property if you qualify for a cramdown or lien stripping.
Chapter 13 Bankruptcy Cramdown
A cramdown lets you reduce the principal balance or interest rate on a secured loan. If you qualify, you pay the property's actual value instead of the higher balance you owe. Your plan divides the debt into a secured portion equal to the property's value and an unsecured portion for the amount above that value.
You pay the secured portion in full through your plan and treat the unsecured portion like your other nonpriority unsecured debts; the court discharges whatever's left unpaid at the end of your case. A cramdown won't work on your home, though, and because you must pay the full cramdown amount through the plan, not everyone can afford this benefit.
Chapter 13 Lien Stripping
If you have more than one mortgage or home equity line of credit (HELOC) and your home is “underwater,” or worth less than you owe, you might be able to strip off the junior lien entirely. Once stripped, that lien becomes a nonpriority unsecured debt, and it gets wiped out along with your other qualifying debts when you receive your discharge.
How Do You Receive a Chapter 13 Bankruptcy Discharge?
You earn your discharge by completing every required plan payment and finishing two mandatory courses. Most plans run three to five years, and if you stop paying before you're done, the court will typically dismiss your case without discharging anything.
You'll also need to check two boxes. First, complete a credit counseling course before you file. Second, complete a debtor education (financial management) course sometime after filing but before your final plan payment. Skip either course, and the court can't discharge your debts, no matter how faithfully you've made your payments. It's one of the most common, and most avoidable, reasons a Chapter 13 case closes without a discharge.
What Is a Chapter 13 Hardship Discharge?
A hardship discharge lets you receive a discharge even if you can't finish your plan, as long as circumstances beyond your control, like a job loss or medical crisis, are to blame. To qualify, you'll need to show your failure to complete the plan wasn't your fault, your creditors already got at least what they would have in a Chapter 7 liquidation, and modifying your plan just isn't realistic.
A hardship discharge usually won't leave you in as good of a position as you'd be in had you finished your plan. It wipes out nonpriority unsecured debts, like credit cards and medical bills, but leaves priority debts, recent taxes, support obligations, and any secured debts you're keeping untouched. (11 U.S.C. § 1328.)
Because so much depends on your specific situation, most filers consult a bankruptcy lawyer before filing.
|
Key Factor |
Standard Chapter 13 Discharge |
Chapter 13 Hardship Discharge |
|
How You Qualify |
Complete every required plan payment and both mandatory courses. |
Show that finishing the plan isn't your fault, creditors already got at least Chapter 7 value, and modifying the plan isn't realistic. |
|
Debts Discharged |
Nonpriority unsecured debts, plus Chapter 13's expanded “super discharge” categories. |
Nonpriority unsecured debts only. |
|
Courses Required |
Credit counseling and debtor education. |
Credit counseling only. Debtor education isn't required. |
|
Typical Timing |
After three to five years of plan payments. |
Whenever the plan becomes impossible to complete. |
What Happens After a Chapter 13 Discharge?
Once the court closes your case, you're done. Creditors holding discharged debts can't collect from you or contact you anymore. Most filers come out of Chapter 13 in solid financial shape, typically owing nothing beyond a mortgage, student loans, or another long-term debt they chose to keep. Curious what life looks like from here? Find out more about what happens after bankruptcy.
Do You Need a Lawyer for Chapter 13 Bankruptcy?
Yes. While Chapter 7 filers with simple cases can sometimes go it alone, Chapter 13 is different. Drafting a plan the court will actually confirm takes a solid grasp of bankruptcy law and software most people don't have. The good news is that filing Chapter 13 often costs less upfront, since a lawyer can roll their fees into your plan payment. That's why plenty of bankruptcy lawyers charge as little as $100 to get started.
Next Steps for Your Chapter 13 Case
Chapter 13 forgives most of your unsecured debt, but you'll still need to pay priority and secured obligations in full, finish both required courses, and stick with your plan for the full three to five years to earn your discharge. If your situation changes mid-case, a hardship discharge might still be within reach. Here are a few articles worth reading next.
In This Article
- What Debt Is Forgiven in Chapter 13 Bankruptcy?
- Debts You Must Repay in Chapter 13 Bankruptcy
- How Much Debt Do You Pay Back in Chapter 13 Bankruptcy?
- Can You Pay Less on Secured Debts in Chapter 13 Bankruptcy?
- How Do You Receive a Chapter 13 Bankruptcy Discharge?
- What Is a Chapter 13 Hardship Discharge?
- What Happens After a Chapter 13 Discharge?
- Do You Need a Lawyer for Chapter 13 Bankruptcy?
- Next Steps for Your Chapter 13 Case