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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 a wage-earner 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 experienced in bankruptcy law can explain in detail, which debts are "erased" as a result of a Chapter 13 discharge and which will remain the obligation of the debtor.
Conclusion
Spousal and Child Support
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 attorney experienced in bankruptcy law can explain the differences between dischargeable and non-dischargeable debts and paint an accurate and realistic picture of your post-bankruptcy financial situation.
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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.
Copyright ©2007 FindLaw, a Thomson Business
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.
The effect of a discharge on child and spousal support obligations varies somewhat depending on whether the debtor filed a Chapter 7 or a Chapter 13 bankruptcy. 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 impact. 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.
In any event the 2005 revision to the Bankruptcy Code made the collection of domestic support obligations a much higher priority. Domestic support obligations are now specifically excepted from discharge. A Chapter 13 case may be dismissed if the debtor fails to pay any domestic support obligation that becomes payable after the filing of the petition. Domestic support obligations that are assigned to a governmental unit may be paid less than 100% but only if disposable income is dedicated to the plan for a full five years. The gist of the change is that a Chapter 13 debtor must certify the payment in full of domestic support obligations or that the confirmed plan provides for payment of prebankruptcy domestic support obligations. Also, the priority of domestic support obligations was moved to the top of the list of priorities, and the preference provisions were amended to protect domestic support transfers from avoidance.
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.
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 impact. 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.
In any event the 2005 revision to the Bankruptcy Code made the collection of domestic support obligations a much higher priority. Domestic support obligations are now specifically excepted from discharge. A Chapter 13 case may be dismissed if the debtor fails to pay any domestic support obligation that becomes payable after the filing of the petition. Domestic support obligations that are assigned to a governmental unit may be paid less than 100% but only if disposable income is dedicated to the plan for a full five years. The gist of the change is that a Chapter 13 debtor must certify the payment in full of domestic support obligations or that the confirmed plan provides for payment of prebankruptcy domestic support obligations. Also, the priority of domestic support obligations was moved to the top of the list of priorities, and the preference provisions were amended to protect domestic support transfers from avoidance.
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
As noted above, educational loans guaranteed by the United States government are also 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: (1) 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; (2) duration-the financial circumstances that satisfy the income test in (1) will continue for a significant portion of the repayment period; and (3) good faith-the debtor must have made a good-faith effort to repay the loan prior to the bankruptcy.
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: (1) 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; (2) duration-the financial circumstances that satisfy the income test in (1) will continue for a significant portion of the repayment period; and (3) good faith-the debtor must have made a good-faith effort to repay the loan prior to the bankruptcy.
Return to Main
Chapter 13 - An Overview
Alternatives to Filing Bankruptcy
Debts that Remain After a Chapter 13 Discharge
Effects of a Salary Increase on a Wage-Earner Plan under Chapter 13
Rebuilding Your Credit after Bankruptcy
Frequently Asked Questions about Chapter 13
Chapter 13 Resource Links
Chapter 13 Contact Form
Chapter 13 - An Overview
Alternatives to Filing Bankruptcy
Debts that Remain After a Chapter 13 Discharge
Effects of a Salary Increase on a Wage-Earner Plan under Chapter 13
Rebuilding Your Credit after Bankruptcy
Frequently Asked Questions about Chapter 13
Chapter 13 Resource Links
Chapter 13 Contact Form
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Dearborn Heights, MI 48127
Phone: (313) 565-4252
(800) 978-4788
Dearborn Heights
23843 Joy Road
Dearborn Heights, MI 48127
Phone: (313) 565-4252
(800) 978-4788
Frego & Brodsky, P.L.C.
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