Like chapter 7 bankruptcy, chapter 13 concludes with the discharge (cancellation) of certain debts, including credit cards, medical bills, personal loans, judgments and deficiencies. The difference between the chapters is that under chapter 13, you have to remit monthly payments on a percentage of the debt you wish to discharge. Depending on factors including your disposable income and hypothetical payment of liquidation proceeds under chapter 7, the percentage paid to unsecured creditors varies between 0% to 100% (with at most a nominal rate of interest, as opposed to the usurious rates outside of bankruptcy). Find out more about how chapter 13 works here.
As in chapter 7, some older income taxes can be discharged under chapter 13 (meaning forgiven without full payment). Student loans do not have to be paid at the full rate while you’re in chapter 13 bankruptcy, though interest accrues.
For public policy reasons, there are exceptions to discharge including domestic support and recent tax debt. Fraud or the presumption of fraud can also be the basis for denial of a bankruptcy discharge. Ultimately, bankruptcy relief is a privilege and not an entitlement.
The unique benefits to chapter 13 actually lie in the debts that cannot be canceled, including non-dischargeable income taxes and debts secured by collateral you wish to keep. The chapter 13 payment plan allows you to modify the payment terms of such debts. Learn more in our next section titled Why File Chapter 13 Bankruptcy?