Debts that Remain After a Chapter 13 Discharge

In a Chapter 13 bankruptcy, the debtor creates a repayment plan to gradually pay off their debts over a period of three to five years. Once the repayment plan is successfully completed, any remaining qualifying debts are typically discharged, providing the debtor with a fresh financial start. However, certain types of debts may remain after a Chapter 13 discharge. Here are some common examples:

Table of Contents

1. Non-Dischargeable Debts

Priority Debts:
- Certain debts are considered priority debts and are not dischargeable in bankruptcy. These may include:
  - Domestic support obligations (child support, alimony)
  - Certain tax debts
  - Government fines and penalties
Secured Debts Not Paid Off:
- If the debtor’s repayment plan did not fully pay off the outstanding balance on secured debts (debts secured by collateral, such as a mortgage or car loan), the remaining balance may survive the Chapter 13 discharge.
- However, the debtor may have options to address these remaining secured debts, such as negotiating with the creditor or entering into a reaffirmation agreement.

2. Debts Excluded from Discharge

Certain Tax Debts:
- While some tax debts may be dischargeable in Chapter 13 bankruptcy, others, such as recent income tax debts or tax debts associated with fraud, may not be dischargeable.
- Debts resulting from tax liens may also survive the discharge if not fully paid off during the bankruptcy process.
Student Loans:
- Student loan debts are generally not dischargeable in bankruptcy unless the debtor can demonstrate undue hardship, which is a challenging standard to meet.
- While the discharge does not eliminate student loan debt, the debtor may still benefit from the restructuring of other debts through the Chapter 13 repayment plan.
Certain Debts Incurred Through Fraud or Willful Injury:
- Debts resulting from fraud, embezzlement, or willful and malicious injury to another person or property are typically not dischargeable in bankruptcy.

3. Debts Not Included in the Bankruptcy Filing

Post-Petition Debts:
- Debts incurred after the Chapter 13 bankruptcy filing are not included in the bankruptcy case and are not subject to the discharge.
- Any new debts accrued during the repayment plan period or after the completion of the plan will remain the debtor’s responsibility.

While Chapter 13 bankruptcy can provide relief from many types of debts, certain debts may survive the discharge. It’s essential for debtors to understand which debts are dischargeable and which are not before filing for bankruptcy. Consulting with a qualified bankruptcy attorney can provide personalized guidance based on the debtor’s specific financial situation and goals.

Filing for bankruptcy can affect certain types of tax debt, but it does not automatically make all tax obligations disappear. The treatment of tax debt in bankruptcy depends on the type of tax, the specific circumstances, and the chapter of bankruptcy you file.

General Rules:

Tax debt is treated differently than other debts in bankruptcy. In most cases, it’s considered a “priority debt,” meaning it gets higher priority for repayment compared to other unsecured debts.
Discharging (eliminating) your tax debt through bankruptcy is generally difficult. You’ll need to meet specific criteria and exceptions.

Here’s a General Overview:

Chapter 7 Bankruptcy:
- In a Chapter 7 bankruptcy, your non-exempt assets may be liquidated to pay off creditors, but certain debts, including some tax debts, may be discharged. However, not all tax debts are dischargeable. To be dischargeable in Chapter 7, the tax debt must meet specific criteria, including that it is income tax debt, the tax return was filed on time, and the tax assessment is at least three years old.
Chapter 13 Bankruptcy:
- Chapter 13 bankruptcy involves a repayment plan over three to five years. While you won’t necessarily eliminate tax debt in a Chapter 13 case, you may be able to include tax debt in your repayment plan, allowing you to pay it back over time. This can provide a structured way to address tax arrears.
Priority Tax Debt:
- Some tax debts are considered priority debts and may not be dischargeable in bankruptcy. Priority tax debts include recent income tax debts, certain payroll taxes, and taxes associated with fraud. Priority tax debts are generally not dischargeable, but a Chapter 13 plan can help you manage the repayment.
Tax Liens:
- Bankruptcy may not remove tax liens. While the personal obligation to pay the tax debt may be discharged, a tax lien secured by property may survive bankruptcy. The IRS or state taxing authority may still have a claim on your property, and you may need to address the lien separately.
Professional Advice:
- It’s crucial to consult with a tax attorney or bankruptcy attorney to assess your specific tax situation. They can provide guidance on the dischargeability of tax debt based on the applicable bankruptcy laws and help you navigate the complexities of the process.

In summary, while bankruptcy can address certain tax debts, not all tax obligations are dischargeable, and the treatment of tax debt in bankruptcy can be complex. Seeking professional advice is essential to understand how bankruptcy may impact your specific tax situation and to explore the available options for managing tax debt.

Important points to remember:

Consulting a bankruptcy attorney and a tax professional is crucial before making any decisions. They can assess your specific situation and advise you on the best course of action.
Bankruptcy shouldn’t be seen as a way to avoid paying your taxes. It should only be considered as a last resort after exploring other options like payment plans or negotiating with the IRS.
Filing for bankruptcy has long-term implications, including a negative impact on your credit score and potential difficulties obtaining credit in the future.

Here are some additional resources that you might find helpful:

Internal Revenue Service (IRS): https://www.irs.gov/businesses/small-businesses-self-employed/declaring-bankruptcy
National Foundation for Credit Counseling: https://www.nfcc.org/
American Bar Association: https://www.americanbar.org/groups/business_law/about/committees/business-bankruptcy/