Will the filing of a Chapter 13 Bankruptcy erase all of my debts?

A Chapter 13 Bankruptcy is a readjustment of all of a person's debts thereby establishing a repayment plan. This repayment period can be anywhere from three to five years.  In any event, the ultimate goal of filing a Chapter 13 is to obtain a discharge. A discharge is to be issued upon the completion of all payments into the Chapter 13 Plan.  

The whole idea behind filing a bankruptcy is to eliminate a person's debts. A bankruptcy wipes out most unsecured debts. These can include medical bills, personal loans, past due utility bills, business debts, charge accounts, collection agency debts and late fees. The discharge in a Chapter 13 case is oftentimes broader that that recived in a Chapter 7 Bankruptcy. The discharge in a Chapter 13 wipes out all debts that were provided for in the Chapter 13 Plan, except:

a. domestic support obligations, or (This generally refers to any child support, spousal or alimony owed to a spouse, former spouse or child of the debtor)

b. most student loans, or (There is a rare exception to discharging student loans. A hardship discharge can be sought. This does not include a financial hardship by itself, but usually must be of the type that is a long-term health condition that will prevent the debtor from being able to make payments on the loan) 

c. debts for restitution or damages awarded in a civil action that were the result of the willful or malicious injury by the debtor that caused personal injury or death

d. certain criminal fines or restitution that were included in the sentence of the debtor's criminal conviction, or

e. certain drunk driving debts, or (These are for debts that the debtor has incurred due to the unlawful operation of a motor vehicle, vessel or aircraft while intoxicated and that resulted in the personal injury or death. It may still be possible to discharge damages to property)

f. long term debts in which the final payment falls due after the completion of the plan; or (This most often refers to a mortgage debt, whereby the mortgage arrears have been cured upon the completion of the Chapter 13 Plan, but the final payment does not fall due until several years later)

g. tax debts, or (Benjamin Franklin once said that two things are certain in life, death and taxes. There are limited situations where some old taxes can be discharged. Even under those circumstances if a tax return is unfiled or late or a fraudulent return is filed, then those taxes would not be dischargeable)

h. debts that have been incurred by false pretenses or fraud; or (In order for a debt of this type to be nondischargeable, the creditor has to file a timely motion objecting to the discharge of this particular debt and the Court must rule that the debt is in fact nondischargeable)

i. debts not listed in the bankruptcy, or (All of the debts that you are wanting to discharge in your Chapter 13 needs to be listed in your bankruptcy forms. A Chapter 13 is considered to be an asset case and therefore a creditor is entitled to notice of the bankruptcy filing and to be provided with the opportunity to file a proof of claim. This is simply a breakdown or an itemization of the amount that the creditor claims that is owed. This to allow the creditor to be able to possibly share in any monies that are to be distributed from the bankruptcy estate)

j. debts for fraud while acting as a fiduciary, or (This is similar to the type of debts incurred through false pretenses. The creditor must file a timely motion objecting to the discharge of this particular debt and the Court must in fact agree that the debt is nondischargeable).

The Chapter 13 Bankruptcy discharge may eliminate or wipe out certain debts that are not dischargeable in a Chapter 7 Bankruptcy.  Those debts that are dischargeable in a Chapter 13 include:

a. willful and malicious injury to property, or (Debts owed to an individual that arose from the debtor's willful and malicious acts that have not been awarded restitution or damages are dischargeable)

b. marital settlement agreements, or (Debts that you owe to an ex-spouse that are part of a divorce or separation agreement that are not in the nature of support are dischargeable)

c. certain fines and penalties, or

d. debts incurred to pay nondischargeable taxes

Before a debtor can receive the full benefits of a discharge it is necessary to determine whether any creditor has secured its' claim by placing a lien on your property. The most common way that a creditor gets a lien on your property is by obtaining a judgment. It will be necessary to avoid that lien or the creditor will retain the right to collect on that judgment. Any personal liability on your part will be wiped out, but the creditor can file an action to collect against the particular property. 

If your circumstances are such that you are in need of filing for bankruptcy, then call Pittsburgh Bankruptcy Attorney Rodney Shepherd at 412 471-9670 or fill out our online client contact information form to schedule an apppointment for a free consultation.  Attorney Shepherd will explain the differences between a Chapter 7 Bankruptcy and a Chapter 13 Bankruptcy and which option is best for you.