Although each person’s situation is unique, there are a few things everyone can typically expect from the conclusion of their Chapter 13 case. Let’s take a look at some of those factors.
The Chapter 13 Discharge Process
Like Chapter 7, Chapter 13 normally ends when you complete the Chapter 13 Plan pursuant to its confirmed terms. The Chapter 13 Trustee will conduct a thorough case completion audit by reviewing the payment history and whether any additional plan terms have been complied with (for example, the payment to the plan of of yearly bonuses or tax refunds). After the Trustee audit is complete the case will be forwarded to the Court for Discharge.
Once the Court enters a “Discharge Order”, you are no longer legally obligated to pay the listed Creditors with certain exceptions.
Debts commonly discharged through bankruptcy include:
- Medical bills
- Unpaid utility bills incurred prior to filing only
- Credit card debt
- Payday loans
- Personal Loans
- Apartment lease deficiencies
- Automobile loan deficiencies
- Unsecured non-priority tax liability
- State Court judgments for any of the above
In very limited cases, you may qualify for a hardship discharge. A hardship discharge is when the court discharges your debts even though you have not completed your plan pursuant to its terms. A hardship discharge is very rare and you may only qualify for it if you demonstrate to the court that you could not complete your plan due to circumstances for which you should not justly be held accountable, a plan modification is not possible, and you repay at least as much as a liquidating hypothetical Chapter 7 Trustee would receive if your case was originally filed as a Chapter 7 case.
Avoidance or Enforcement of Liens
Is any of your debt secured by collateral? In other words, does a lienholder have a legal claim to your property if you fail to pay pursuant to the secured contract? Common examples of secured debts include automobile loans and mortgages. Additionally, the IRS may place an involuntary lien on your property (both real and personal) if you fail to pay your taxes, and an unsecured creditor (like a credit card company) may sue you, obtain a judgment in State Court and place a “Judgment Lien” on your real property by filing the lien with your local county registrar of deeds.
Unfortunately, a Chapter 13 bankruptcy does not automatically avoid (i.e. get rid of) liens. A Chapter 13 Plan may modify an automobile lien and if the plan completes and you receive a discharge the debt will be gone and the car lienholder is obligated to release its lien upon discharge. In certain circumstances a Chapter 13 Plan and subsequent discharge may avoid a second or third mortgage lien. Certain mortgage liens on rental property can be modified depending on the value of the property.
Mortgage payments and mortgage arrearages that are paid through a discharged plan will be considered current upon the entry of a discharge order . A discharge order in this circumstance will not effect the validity of the underlying mortgage lien and continuing mortgage payments must be made to avoid future default and foreclosure.
You should always seek the advice of a bankruptcy professional to make a determination specific to your facts and circumstances in order to know what applies to you before you file a Chapter 13 bankruptcy.
Chapter 13’s Impact on Your Credit
Your Chapter 13 bankruptcy will remain on your credit report for seven years. However, the effect of the bankruptcy on your score will diminish over time. You may need to wait several years to take out a new mortgage, but you will most likely have other credit opportunities right away.
To quickly improve your credit (and avoid a second bankruptcy), consider:
- Consider opening a secured credit card account with a low credit limit
- Consider opening an account at Credit Union as they loan to members who carry a balance in their accounts
- Keep overall borrowing low
- Fund a savings account with 10% of your net monthly income for future emergencies to avoid relying on expensive credit costs
- Make all payments on time
- Closely monitor your credit report for inaccuracies
With the proper guidance, Chapter 13 can be the fresh start you need to regain your financial footing. Although it will not result in a discharge as quickly as Chapter 7, Chapter 13 can greatly improve your situation by helping you reduce your financial obligations, protect your property from sale, pay off back real and income taxes and obtain temporary relief from non-dischargeable student loans.
To find out whether Chapter 13 is right for you, get in touch with a experienced bankruptcy professional.
Let’s Go Over Your Options Today
At the Law Offices of Marshall D. Schultz, our attorneys have more than 50 years of bankruptcy experience. When you bring your case to our firm, you can trust us to conduct a close analysis of your situation to determine which chapter might be right for you. We can then guide you through every step of the bankruptcy process, helping you avoid common mistakes and maximize the benefits of bankruptcy.