Chapter 13 discharges most unsecured debts like credit cards, medical bills, and personal loans after you complete your 3-5 year repayment plan, but it also clears debts not dischargeable in Chapter 7, such as some older taxes, divorce property settlements, and debts for willful/malicious injury to property, while never discharging child support, alimony, recent taxes, or DUI-related debts. The key is completing your plan payments to get the discharge, though hardship discharges exist.
No, Chapter 13 bankruptcy does not wipe out all debt; it allows you to repay debts over 3-5 years through a plan, discharging most remaining balances at the end, but certain debts like most student loans, recent taxes, alimony, child support, and debts from fraud or drunk driving are generally not discharged and must still be paid, either during the plan or afterward.
A chapter 13 bankruptcy is also called a wage earner's plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years.
As a result, most Chapter 13 plans do not have to provide for the repayment of unsecured debts. The only instance when Chapter 13 plans must provide for payment of unsecured debts is when an unsecured creditor objects to the plan. If this happens, the debtor must pass a “disposable income” test.
One thing you will lose for sure if you file for Chapter 13 bankruptcy is your credit cards. Why is this? It's because all debts are treated the same. You can't keep debt on your credit card, even a minimal one when you are paying down a debt somewhere else under a Chapter 13 plan.
Chapter 13 average monthly payments vary widely, often from a few hundred to over a thousand dollars, depending on your disposable income, total debt (especially secured and priority debts like mortgages, car loans, taxes, and child support), and the 3-to-5-year plan length, with higher earners and those with significant arrears usually paying more. These payments fund a plan to repay debts over 3-5 years, ensuring you keep your property and get court protection.
Common Mistakes to Avoid When Filing for Chapter 13 Bankruptcy
Chapter 13 bankruptcy is typically removed from your credit report seven years after the date you filed, and this is done automatically. The turnaround is quicker because you're required to at least partially repay your debt.
Stay in Touch With Your Bankruptcy Trustee and Lawyer
Some Chapter 13 Plans require debtors to pay into the plan their federal tax refunds. Typically, tax refunds are required on all cases where unsecured creditors are paid less than 70%. If tax refunds are required in the plan as payments, it will be stated on your confirmed plan.
In this post, we'll go over 9 things you cannot do after filing Chapter 13.
A Chapter 13 bankruptcy remains on your credit report for up to 7 years, which can make it difficult to obtain new credit, rent an apartment, or secure a loan during this time. For many, the long-term impact on their financial opportunities can feel like a burden.
Many Chapter 13 Bankruptcies Fail
And that's due in large part to the fact that Chapter 7 cases are much simpler and quicker. The main reason so many Chapter 13 cases fail is that it's difficult to stick to the required 3–5-year repayment plan. Most payment plans under Chapter 13 are five years long.
The average credit score after a Chapter 13 discharge varies widely but typically falls in the “poor to fair” range (300-659). However, many individuals see their scores improve within a year or two by consistently practicing good financial habits.
In most instances, lenders require borrowers to wait one to two years after a Chapter 13 bankruptcy discharge and two to three years after a Chapter 7 bankruptcy discharge for government-backed loans like FHA, VA, or USDA mortgages. For conventional loans, the waiting period is often longer.
If you try to negotiate with a creditor prior to filing for Chapter 13 bankruptcy, the Chapter 13 plan will supersede any agreement you reach. Your creditor will assume that you conducted the prior negotiations in bad faith.
Spending While in Chapter 13
The money you make after the filing date should first be used to make your monthly plan payment to the Trustee. After that, your money is yours to do with as you please, up to a point: if you need to make a large purchase such as a car or a house, you might need the court's permission.
Along with the mandatory questions, trustees typically ask about your property and other assets, income, expenses, and debts. Other areas will include discrepancies in your bankruptcy forms and how you came up with a value for various property items.
If your income goes down during your Chapter 13 bankruptcy and you can no longer afford your monthly plan payment, you can ask the court to modify your Chapter 13 repayment plan and reduce your payment amount. Whether the court will allow you to lower your plan payment will depend on several factors.
Several interlinked factors set the amount of your Chapter 13 bankruptcy payment. These include: Disposable Income: Your disposable income, calculated as your total income minus allowed bankruptcy expenses, significantly influences your repayment.
Missing a Chapter 13 payment is a serious issue. At the same time, very few bankruptcy trustees are going to file a motion to dismiss against you over a single late payment. As a general rule, it takes two or three missed payments before action is taken to default a Chapter 13 bankruptcy plan.
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