Debts Remaining After a Chapter 13 Discharge

A Chapter 13 bankruptcy discharge will not erase all debts. Some debts may not be discharged in Chapter 13. There are some exceptions to Chapter 13 discharge, however:

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Claim for child support or spousal support (alimony).

  • Education loans
  • Driving under the influence
  • Restitution obligations and criminal fines

Some long-term obligations such as home mortgages that go beyond the term of the plan may be required.

Any other debts that are not covered by a wage-earner program

Below are more details about these exemptions to Chapter 13 discharge. Additional information can be found at Exempt Property in Chapter 13 Bankruptcy, Chapter 13 Debt Discharge and What are the Debtor’s obligations under Chapter 13?

What are the Domestic Support Obligations under Chapter 13?

Domestic support obligations are debts that were incurred prior to or after bankruptcy and must meet the following conditions:

They are due to your spouse or ex-spouse, your child, or a government agency

  • They can be used to support or alimony.

This obligation should be included in a “divorce decree”, separation agreement, property settlement arrangement, court order, administrative determination, or court order. Section 101(14A), Bankruptcy Code.

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  • Spousal Support and Child Support

You can have a discharge of child support obligations and spousal support obligations depending on whether you file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy.

A Chapter 7 filing won’t have any effect on these obligations, but a Chapter 13 proceeding might stop collection efforts for these debts at least temporarily.

The Bankruptcy Code does not allow creditors to stop or “stay,” their efforts to collect debts. However, all bankruptcies end or “stay”, creditors’ attempts to collect. Only the creditor attempting to collect from the “property” of the estate can collect child support and spousal maintenance. Different chapters of the Bankruptcy Code define the “property” of an estate differently.

Chapter 13 of the Bankruptcy Code treats the debtor’s earnings as part of the estate. The repayment plan is made from the debtor’s current income and not from any liquidated assets.

Support collections can be stopped in Chapter 13. A court may lift the stay to allow withholding child support and alimony from the debtor’s earnings. It will depend on the extent of child and spouse support provided by the wage-earner plan. The court may lift the stay if it believes that the plan is not adequate.

  • Domestic Support Options are High Priority Debts

Revisions to the Bankruptcy Code in 2005 made domestic support obligations a higher priority. Discharge of domestic support obligations is now exempted.

If the debtor fails pay any domestic support obligation due after filing the petition, a Chapter 13 case can be dismissed. A governmental unit can be assigned domestic support obligations. However, the amount may not exceed 100% if there is no income available for the plan for five years.

The change requires that Chapter 13 debtors must either certify that they have paid all domestic support obligations, or that their confirmed plan includes pre-bankruptcy domestic assistance obligations. The priority of domestic support obligations was moved up to the top of this priority list. Additionally, preference provisions were modified to protect domestic support transfers against avoidance.

Can Alimony be Discharged in Bankruptcy

No. No. Same applies to child support obligations. These obligations continue even after bankruptcy proceedings are over.

  • Student Loans

A Chapter 13 bankruptcy is not usually used to discharge educational loans that are guaranteed by the United States government.

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However, they may be dismissed if the court determines that the loan is causing undue hardship to the debtor or their dependents. To be eligible for a hardship discharge, the debtor must prove that:

They are unable to make any payments at the time of filing bankruptcy.

They won’t be able make future payments. Before the discharge of other debts can be granted, the debtor must file for hardship discharge. The standard bankruptcy fees do not include the application for hardship discharge. This must be paid after the case has been filed.

The requirements for granting hardship relief on a student loan are not defined in the Bankruptcy Code. Although courts may use different criteria, they will often use a 3-part test to determine eligibility.

Income: The debtor who is forced to repay the student loan will be unable to provide a minimum level of living for themselves and their dependents.

Duration: For a substantial portion of the repayment period, the financial circumstances that meet the income test in (1) will be maintained.

Good faith: The debtor must have tried to repay the loan in good faith before filing for bankruptcy.

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Find solutions to your Chapter 13 issues by contacting an attorney

It is not an easy task to manage debt. Understanding your rights will help you to get rid of your debt while still protecting your assets. A local bankruptcy attorney can help you plan your path to financial freedom.

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