A Chapter 13 bankruptcy case allows you to get current on secured debts while paying only a portion of your unsecured debts. In some cases, you won’t have to pay unsecured creditors anything during the repayment period. When the repayment period ends, your unsecured debts may be discharged.
How debts are handled during a Chapter 13 case
The trustee who is assigned to your case will collect your monthly payment and distribute it to creditors. You will be required to make payments for either three or five years depending on your income. The amount of each payment that you make is based on your disposable income. Disposable income is any money that you have left at the end of the month after accounting for food, shelter and other basic expenses.
Not all debts can be erased in a Chapter 13 proceeding
As a general rule, student loan balances cannot be eliminated in bankruptcy, and the same is generally true for past-due child support or alimony payments. You will likely need to prove that you are current on child support and alimony payments as a condition of receiving a Chapter 13 discharge.
Furthermore, you will need to stay current on your mortgage and ensure that you file and pay your taxes on time. Finally, you will need to show proof that you have taken and completed a financial counseling course before a discharge is granted.
Debts go away completely after they are discharged
If a debt has been discharged, it means that you no longer have an obligation to repay it. Furthermore, your creditors are generally unable to contact you regarding an outstanding balance or take other actions in an effort to recoup what they were owed prior to the discharge.
If you are struggling to repay your debts, it might be helpful to file for Chapter 13 bankruptcy. A bankruptcy law professional may be able to provide insight into the potential benefits of filing, such as the ability to receive an automatic stay of creditor contact.