Laws on Debt Forgiveness Through Chapter 13

by Heather Frances J.D. Google
Certain debts, like credit cards, may be discharged under Chapter 13.

Certain debts, like credit cards, may be discharged under Chapter 13.

Jupiterimages/Brand X Pictures/Getty Images

When debt piles up, individual debtors may need the structure of a bankruptcy case to get back on their feet again. If you qualify, bankruptcy offers protection from collection efforts and a chance to partially erase some debts while paying others. An online legal services provider can help you file your bankruptcy case.

Get a free, confidential bankruptcy evaluation. Learn More

Chapter 13 Overview

Chapter 13 is designed for individuals with a regular income high enough to allow the filer to make small payments toward his debt under a repayment plan. Chapter 13 is governed by the federal bankruptcy code, so all Chapter 13 cases discharge the same types of debt, regardless of where the filer lives.

Automatic Stay

When an individual files a Chapter 13 case, he receives an automatic stay, which means his creditors must immediately stop collection efforts on past due debts. Chapter 13 is often the preferred type of bankruptcy for debtors who wish to keep their homes, since a mortgage lender must stop collection efforts when the Chapter 13 case is filed.

Repayment Plan

The Chapter 13 repayment plan enables the debtor to make installment payments to his creditors over the life of the plan, which is three or five years, depending on the debtor’s income. The plan is proposed by the debtor but must be approved by the court. The debtor pays a portion of his monthly income to a bankruptcy trustee who, in turn, uses that money to pay the creditors.

Secured and Unsecured Debts

In a bankruptcy case, secured debts have priority over unsecured debts. Secured debts are those that are secured by collateral, such as a mortgage or car loan. Unsecured debts, such as credit cards and medical bills, may be discharged in a bankruptcy case, but secured debts are not. However, the bankruptcy case does allow the debtor to catch up on past due payments on secured debts so the creditor will not repossess the collateral. For example, if you are past due on your car loan payments, your lender can repossess your vehicle, but if you file Chapter 13 bankruptcy, he has to give you a chance to catch up on those past payments instead.

Discharge of Debts

At the end of the repayment plan, secured debts are usually paid in full but unsecured debts may only be partially paid. The remaining amount the debtor owes on these unsecured debts may be discharged by the bankruptcy court, which means the debtor is released from paying the debt. The creditor cannot attempt collection efforts on the discharged debt. However, this discharge will not apply to certain types of unsecured debt, such as child support or government-backed student loans.