In one of our recent blogs, we spoke about discharging debts in Chapter 7 and Chapter 13, so it's only fair that we explain what a discharge actually is. When you file for Chapter 13 bankruptcy, the goal is to complete your repayment plan and get a discharge.
A discharge is actually a Court Order. Getting your bankruptcy discharged is the legal determination that all of your unsecured debts that remain after your repayment plan are gone. This means that the collection companies and bill collectors can no longer bother you or try to seek payment for any debts that were discharged.
A Chapter 13 bankruptcy discharge is typically broader than a Chapter 7 discharge because it wipes out debts that would be non-dischargeable in Chapter 7.
When Would I Receive a Discharge in Chapter 13?
In Chapter 13 bankruptcy, you pay back a certain amount of your debts through a repayment plan. How much you have to pay back depends on many factors, including your debts, income, and expenses. There are certain debts, called priority debts, which must be paid off in full, while unsecured non-priority debts don't have to be paid in full or even at all.
The amount you pay towards your unsecured non-priority debts depends on your income and expenses, but it's usually less than the outstanding balance of your debt. After you complete your repayment plan, the remaining balance or the unpaid portion of the debt is discharged and your creditors can no longer come after you to collect the unpaid debt.
Which Debts Can Be Discharged?
The majority of debts discharged in Chapter 13 bankruptcy consist of unsecured non-priority debts. Some of the most common types of unsecured non-priority debts include:
- Credit Card Debt: Many people who file for bankruptcy have some amount of credit card debt they'd like to get rid of. Credit card debt is considered unsecured non-priority debt, and the outstanding balance remaining after you complete your repayment plan is discharged
- Medical Bills: Medical bill debt is one of the biggest reasons that people file for bankruptcy. If you acquired debt because your medical care wasn't fully covered by insurance, you have the ability to get rid of your medical bills after your Chapter 13 discharge.
- Personal Loans: Similar to credit card debt, any personal loans you took out can also be discharged at the end of your Chapter 13 bankruptcy. If you pledged an asset as collateral when you took out your loan, the Chapter 13 bankruptcy may discharge your responsibility to pay the loan, but the creditor can repossess the collateral if you don't pay back your loan.
- The Chapter 13 Hardship Discharge: After you confirm your Chapter 13 repayment plan, circumstances may arise that prevent you from completing your plan. In these situations, you may ask the court to grant you a hardship discharge. Generally, the hardship discharge is only granted if:
- The debtor's inability to complete the repayment plan is due to circumstances beyond the debtor's control and is through no fault of the debtor,
- Creditors have received at least as much as they would have received in a Chapter 7 case, and
- It's not possible to modify the plan in a meaningful fashion.
If you're thinking about filing for bankruptcy, the first thing you should do is speak to an experienced bankruptcy attorney. They'll explain the bankruptcy process and will let you know what to expect towards the end of your bankruptcy.