What Happens at the End of a Chapter 13?

Debtors typically file for bankruptcy to receive a financial fresh start. Though there are multiple types of bankruptcy available, Chapter 13 is a common type of individual bankruptcy that, like other types, allows the debtor to pay some debts while erasing others, and Chapter 13 automatically prevents collection actions while the case is ongoing. Chapter 13 can even stop foreclosure or vehicle repossession. Once the case is successfully completed, many unpaid debts will be erased.

Unlike a Chapter 7 bankruptcy, in which assets are liquidated, a Chapter 13 bankruptcy reorganizes your debt. You keep your property, but you pay back all your debts over a three- to five-year period, under a court-approved repayment plan. If your income is irregular or too low, or if your debt burden is too large, the court might not allow you to file for Chapter 13 bankruptcy.

Read More: Chapter 13 Bankruptcy Explained

A trustee will administer your repayment plan. You pay the trustee and the trustee pays your debts. Certain types of debt, such as child support, are given priority consideration for repayment, and secured debts also must be paid. Secured debts are those that are secured by collateral, such as mortgages and auto loans; unsecured debts, such as credit cards, are not secured by collateral. Under the repayment plan, any of your disposable income – money left over after you pay for your basic needs like food and shelter – must go toward paying your unsecured debts. You don’t have to repay your unsecured debts in full, or sometimes at all. You just have to show that you are paying your disposable income toward those debts.

Once you complete your repayment plan, your remaining debts are eligible for discharge. A discharge means those debts will be erased, even if they have not been fully paid. Before you can receive a discharge, you must show the court you are current on any child support and alimony obligations you might have since these are not erased as part of the discharge. You must also complete a financial counseling course approved by the U.S. Trustee Program.

Some debts are not discharged in a Chapter 13 bankruptcy. These include certain long-term obligations, such as home mortgages, certain taxes, debts for most government-funded or government-guaranteed student loans, debts for government benefit overpayments and some debts from court cases. A discharge in a Chapter 13 bankruptcy is broader than a Chapter 7 discharge since a Chapter 13 discharge can include debts for willful and malicious injury to property, debts acquired to pay tax obligations, and debts from property settlements in divorce or separation proceedings.