What does Chapter 13 bankruptcy remove?

If you are looking to pay back or restructure significant debts, filing a Chapter 13 bankruptcy may be an option. Chapter 13 bankruptcy allows debtors to repay their debts through a repayment plan over the course of three to five years. Once the repayment is completed, the majority of the remaining debts are eliminated. 

Petition to file for bankruptcy

If you need help filing through Chapter 13, a Florida bankruptcy lawyer from the Law Firm of Hoskins, Turco, Lloyd & Lloyd can help. 

Secured Debts vs. Unsecured Debts

Chapter 13 bankruptcy is the right decision for many individuals looking to restructure their debts. The benefit of filing under Chapter 13 is that, in most instances, debtors may retain all or most of their assets while repaying a portion of their debts. At the end of the repayment plan, remaining debts are often wiped out. 

If you are considering filing Chapter 13 bankruptcy, you need to understand the difference between secured and unsecured debts and what is deemed to be dischargeable. 

Managing Unsecured Debts With Chapter 13 Bankruptcy

Most dischargeable debts under Chapter 13 bankruptcy are unsecured. Unsecured debt is any debt or financial obligation not protected by a guarantor. In the event someone defaults on an unsecured debt, the lender has to file a lawsuit to collect what they are owed. 

Unsecured debts, also considered non-priority, are typically dischargeable through a Chapter 13 bankruptcy filing. The most common types of unsecured debts you may be able to manage with Chapter 13 include the following:

  • Credit card debts 
  • Lawsuit judgments 
  • Medical bills 
  • Personal loans
  • Income tax obligations 
  • Utility bills 

If you are looking to have these debts discharged, you will likely need to pay a portion through repayment. As long as you abide by your court-ordered repayment plan, any remaining balances will be discharged at the end of your repayment period. 

Managing Secured Debts With Chapter 13 

Secured debts are obtained when a borrower puts up an asset with their lender as collateral for their loan. In the event a borrower defaults on a secured debt, the lender has the right to collect the asset to repay the remaining balance of the money originally paid to the borrower. 

Most of the time, secured debts are not managed with a Chapter 13 bankruptcy filing; however, they can be. The most common type of secured debt managed through Chapter 13 is mortgages or other types of home loans. 

When a borrower stops making payments on a secured loan, the lender can foreclose on their house or repossess their car even if they file for Chapter 13 bankruptcy. However, if a borrower meets certain conditions, they may be able to save their home through a process called lien stripping. 

When a debt is stripped, it is split into secured and unsecured portions. The secured amount must be included in the repayment plan, while the unsecured part can be discharged at the end of the repayment period. 

Dischargeable Debts Unique to Chapter 13 

If you are looking into your bankruptcy options, you will also come across filing through Chapter 7 bankruptcy. 

Whether you file Chapter 13 or Chapter 7 ultimately depends on your situation. Your attorney can advise on your best path. 

However, certain debts are only dischargeable through Chapter 13. The most common include the following:

  • Debts related to divorce or separation, excluding support obligations like child support or alimony
  • Debts related to malicious or willful property damage
  • Fees related to condominium or homeowners association fees
  • Fines owed to the government, excluding criminal penalties
  • Non-dischargeable tax obligations
  • Outstanding debts from a prior bankruptcy filing
  • Retirement account loans

Assuming you meet the requirements for Chapter 13 bankruptcy, you will receive notification of a repayment plan, including the specific amount of debt you are required to repay before any remaining amount is discharged. Repayment plans are based on factors like your income and expenses, the types of debt you have, and the value of any property you own. 

Once you reach the end of your repayment period, the remaining dischargeable balances are wiped out, in most cases, you can start on a new journey with your financial health. 

Debts You Cannot Cancel With Chapter 13  

It is important to note that there are some debts that cannot be managed through Chapter 13. If include them in your repayment plan, you must repay them in full regardless of your assets and income. Non-dischargeable debts through Chapter 13 include:

  • Administrative claims. Administrative claims are those that must be paid before any other debt. Per §507(a)(1) of the Bankruptcy Code, an administrative claim “must have arisen from a post-petition transaction between the creditor and the debtor, and the expense must have been “actual and necessary” to preserve the estate.” For example, you cannot roll trustee payments or attorney fees into your bankruptcy repayment plan. 
  • Car loans. If you want to keep your vehicle and file Chapter 13 bankruptcy, you will need to pay the remaining amount through your repayment plan — mainly if you are behind on your payments or looking to reduce your loan balance. You may also be able to continue making direct payments to your lender. 
  • Priority debts. Priority debts, such as spousal support and child support,  are not dischargeable through Chapter 13 bankruptcy, which means if you include them in your repayment plan, you will need to pay them in full. However, including them may give you the opportunity to pay priority debts, like tax debts or alimony, over a three to five year period.  

Learn About Filing Chapter 13 Bankruptcy in Florida 

At Hoskins, Turco, Lloyd & Lloyd, our Florida bankruptcy lawyers understand how complex filing for bankruptcy can be for individuals and families. If you are struggling financially and want to learn more about whether or not bankruptcy is suitable for your situation, get in touch with a Chapter 13 bankruptcy attorney.

When you reach out to our law firm, we will explain your legal rights and options regarding bankruptcy and ensure you understand the state and federal laws that impact your situation. Call (866) 460-1990 or contact us online today to learn more.

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