Debts that Remain After a Chapter 13 Discharge

This idea that bankruptcy requires turning over all of your property is a myth, particularly in Chapter 13 cases. If you are considering bankruptcy and need someone to help you separate the myths from the facts, contact an experienced bankruptcy attorney.

A Michigan Chapter 13 Bankruptcy Law Firm

Local Debt Relief Attorneys

The Law Office of Babut Law Offices, PLLC is committed to helping people throughout Southeastern Michigan achieve financial stability through Chapter 13 Bankruptcy. We understand the importance of local representation when filing for Chapter 13 bankruptcy and we have offices located in Ypsilanti, Taylor, Jackson, and Adrian to meet the needs of our clients.

Having handled more than 10,000 bankruptcy cases over fifteen years, our attorneys have the skill and knowledge to assure that payment plans worked out through the bankruptcy court place our clients on the road to financial recovery.

Contact our Michigan Chapter 13 Bankruptcy Attorneys

If you are experiencing financial hardship and need the legal advice and representation of an experienced Chapter 13 lawyer, please contact the Law Office of Babut Law Offices, PLLC. Our firm has offices in Ypsilanti, Taylor, Jackson, and Adrian to meet the needs of clients throughout Southeastern Michigan, including Wayne, Washtenaw, Lenawee, Jackson, Hillsdale, Calhoun, and Livingston Counties and the Down River area. Some of the cities we routinely serve include Ann Arbor, Hillsdale, Saline, Romulus, Flat Rock, Taylor, Southgate, Wyandotte, Lincoln Park and Allen Park and surrounding areas.

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Debts that Remain After a Chapter 13 Discharge

A Chapter 13 discharge affects only those debts provided for by the plan. Any debts not provided for in the plan will remain, and the debtor will have to pay them in full, even after discharge. Additional exceptions to a Chapter 13 discharge include, generally, claims for spousal and child support; educational loans; drunk driving liabilities; criminal fines and restitution obligations; and certain long-term obligations, such as home mortgages, that extend beyond the term of the plan. A lawyer at Babut Law Offices, PLLC in Ypsilanti, MI, can explain which debts are "erased" as a result of a Chapter 13 discharge and which will remain the obligation of the debtor.

Spousal and Child Support

The effect of a discharge on child and spousal support obligations depends upon whether the debtor filed under Chapter 7 or Chapter 13 of the Bankruptcy Code. Whereas a Chapter 7 filing will have little effect on such obligations, a Chapter 13 proceeding may stop the collection activities, at least temporarily. The difference between chapters arises because, although all bankruptcies stop or "stay" creditors' efforts to collect debts, the Bankruptcy Code excludes actions to collect child support or spousal maintenance from the stay unless the creditor attempts to collect from the "property of the estate," and the different chapters of the Code define this term differently.

In a Chapter 7 proceeding, "property of the estate" includes all possessions, money and interests the debtor owns at the time he or she files. Money earned after the bankruptcy is filed, however, is not property of the estate. Since most child and spousal support is paid out of the debtor's current income, the bankruptcy should have little effect. Under Chapter 13, however, the Code considers the debtor's earnings as property of the estate, since the wage-earner plan is based on making payments from the debtor's current income rather than from liquidated assets. As a result, support collections may be stayed. The court can decide to remove the stay to allow for withholding alimony and child support from the debtor's income. Whether it does so may depend on how well the wage-earner plan provides for child and spousal support. If the court does not believe that the plan includes adequate provisions, it may decide to lift the stay.

Neither a Chapter 7 nor a Chapter 13 discharge affects post-discharge child or spousal support obligations. In other words, even at the conclusion of the bankruptcy proceeding, these on-going obligations remain.

Student Loans

Educational loans guaranteed by the United States government are generally not discharged by a Chapter 7 or Chapter 13 bankruptcy. They may be dischargeable; however, if the court finds that paying off the loan will impose an undue hardship on the debtor and his or her dependents. In order to qualify for a hardship discharge, the debtor must demonstrate that he or she cannot make payments at the time the bankruptcy is filed and will not be able to make payments in the future. The debtor must apply before the discharge of the debtor's other debts is granted. Application for a hardship discharge is not included in the standard bankruptcy fees, and must be paid for after the case is filed.

The Bankruptcy Code does not specifically define the requirements for granting a hardship discharge of a student loan. Courts have applied different standards, but they often apply a three-part test to determine eligibility:

Income — if the debtor is forced to pay off the student loan, the debtor will not be able to maintain a minimum standard of living for himself or herself and his or her dependents
Duration — the financial circumstances that satisfy the income test will continue for a significant portion of the repayment period
Good Faith — the debtor must have made a good-faith effort to repay the loan prior to the bankruptcy

Speak to a Bankruptcy Lawyer

It is tempting to believe that a Chapter 13 discharge will leave the debtor completely debt free, but that is not the case. Certain debts remain even after bankruptcy. An experienced bankruptcy attorney at Babut Law Offices, PLLC in Ypsilanti, Ypsilanti, can explain the differences between dischargeable and non-dischargeable debts and paint a realistic picture of your post-bankruptcy financial situation.

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

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