You might consider filing a Chapter 13 bankruptcy in order to keep your house and the assets you worked hard to accumulate. Someone may have told you that, after three to five years of tightening your belt and making payments to your creditors through the court, you could walk away with all of your assets, including your house, intact. You just have to come up with a repayment plan that meets the court's approval.
Well, it's not quite that simple, but it does provide a basic outline of the process. Of course, you must meet certain qualifications first, such as having a steady income, enough disposable income to fulfill the plan, and you must meet other criteria for bankruptcy. Let's say that you make it through the vetting process and file. What happens after you complete your plan?
The Chapter 13 discharge
This piece of paper makes the whole process worth it. In order to obtain a discharge, the following must be true:
- You must successfully complete your repayment plan.
- You must not have received a bankruptcy discharge through another filing within two years from the filing of your current Chapter 13 case.
- You must complete a court-approved financial management course.
- You must attend a court hearing regarding whether any pending proceeding could infringe upon and limit your homestead exemption.
Your discharge releases you from payment of all your debts, except the following:
- You remain obligated to pay certain long-term debts such as the mortgage loan on your home.
- You remain obligated to pay debts such as child support, alimony and some taxes.
- You must continue to pay debts arising out of a criminal conviction.
- You must continue to pay debts arising out of the death or serious injury in an alcohol or drug-related crash caused by you.
Of course, if you pay these debts in full as part of your repayment plan, these exceptions do not apply. Some other debts could qualify for discharge unless the party to whom you might owe the debt successfully proves to the court that the debt should not be discharged:
- Property or money you received through false pretenses, fraud or a breach of fiduciary duty.
- Civil Damages or restitution arising out of a malicious or willful act on your part, which caused serious injury or death, requires court approval for exclusion from discharge.
Chapter 13 also allows you to discharge debts not eligible for discharge in other chapters such as the following:
- Debts you incurred for the malicious or willful damage of property.
- Debts you incurred in order to pay taxes not eligible for discharge.
- Debts you incurred through a property settlement agreement in a separation or divorce.
When you receive your discharge, be certain of what debts you must continue to pay.