Chapter 13 Discharge

When the debtor files a Chapter 13 case, the U.S. Bankruptcy Court is empowered to determine whether the debtor is eligible under the U.S. Bankruptcy Code to receive a discharge of debts upon completion of the Chapter 13 Plan. In some cases, a prior bankruptcy case filing where a Discharge Order was entered can render the debtor legally ineligible to receive a discharge in the case, but not prohibit them from having the other protections of Chapter 13 (deceleration of secured debts in default and protection under the court's automatic stay order).

How Do Discharged Debts Affect Creditors?

Creditors cannot collect discharged debts. This means they cannot sue the debtor, garnish the debtor's wages, assert a deficiency balance against the debtor after repossessing collateral (such as a car), or otherwise try to collect a debt against a discharged debtor by any other means of communication or legal action. Creditors cannot contact the debtor by mail, phone, or any other manner to collect or attempt to collect a discharged debt.

A creditor with a lien may enforce a claim solely against the property of the debtor that was pledged to secure a debt. The most common situation would be a car loan or a mortgage loan in which the debtor is in default. In some Chapter 13 bankruptcy cases, a lien can be ordered to be avoided or eliminated by the Bankruptcy Court.

A creditor may have the right post-bankruptcy discharge to repossess the debtor's vehicle or foreclose on the debtor's home if the monthly payments for these secured debts are not kept current. The secured creditor cannot, however, collect on any balance due that comes about as a result of an auction or foreclosure sale, including fees, costs of sale, or taxes paid by the creditor. Any costs or fees that arise under the discharged Promissory Note are subject to the Court's Discharge Order and cannot be recovered by the creditor.

What Types of Debts Cannot Be Discharged?

Most debts are covered by the discharge order, but not all. Generally, a discharge order removes the debtor's personal liability for debts provided for by the Chapter 13 Plan.

Examples of debts that are not discharged in a Chapter 13 case are:

1. Debts that are domestic support obligations (child support and spousal support)
2. Debts for most student loans
3. Cebts for certain types of taxes specified in 11 United States Code Section 507 and 523 to the extent not fully paid under the Chapter 13 Plan
4. Debts that the bankruptcy court has determined or will decide are not discharged
5. Debts for most criminal fines, penalties, forfeitures, or criminal restitution obligations
6. Some debts that the debtor did not properly list on the bankruptcy schedules
7. Debts listed under 11 United States Code 1322(b)(5) and on which the last payment or other transfer is due after the date on which the final payment under the plan is due
8. Debts for certain consumer purchases made after the bankruptcy case was filed if obtaining the Chapter 13 Trustee's prior approval of incurring the debt was practical but not obtained
9. Debts for restitution or damages awarded in a civil action against the debtor as a result of malicious or willful injury by the debtor that caused personal injury to an individual or the death of an individual
10. Debts for death or personal injury caused by operating a vehicle while intoxicated

In addition, the Discharge Order does not prohibit creditors from collecting from anyone else who is also liable on a debt, such as an insurance company or a person who co-signed or guaranteed the loan or obligation.