The discharge is the completion of the bankruptcy process for the chapter 7 and the chapter 13. The creditors would be prohibited from taking further action to collect on a debt or from taking action to sue someone for a certain debt once the debt was discharged. It would basically wipe out the debt that was discharged so the person who filed for the bankruptcy, the debtor, would be released of any liability in that regard.
Will All Debts Need To Be Settled In A Chapter 7 Or 13 In Order To Get A Discharge?
Not all debts are discharged. Different types of debts apply in the bankruptcy, so there could be secured debts, unsecured debts, and priority debts. Secured debts are just like the name suggest because there are some sort of security like a house or car which would be used as collateral. The creditor could foreclose on the house in the case that the person could not pay the debt on the house, and the creditor could repossess the vehicle if the person was unable to pay their car loan.
Unsecured debts include credit cards, payday loans, charged cards, medical bills and any other loan that someone could get where there would be no collateral for the debt to be attached to. Priority debts often include taxes and domestic support obligations such as child support or anything that the legislature has determined to be a priority.
A chapter 7 would discharge, or in other words “wipe out,” unsecured debts. Secured debts and priority debts are not wiped out by the chapter 7 bankruptcy, so they survive the bankruptcy. The debts that would be discharged in a chapter 13 setting would be the unsecured debts to the extent that they could not be paid from the funds that were available from the administration of the estate.
What Are Priority Debts, And What Kinds Of Debts Remain Outside Of The Bankruptcy?
Examples of priority debts would be debts like child support, spousal support and taxes.
What Kind Of Debt Is A Student Loan?
Student loans are an unsecured debt, but they are special type of unsecured debt that would not get discharged by the bankruptcy. A chapter 7 would not get rid of those types of debts. People who have priority debts and secured debts but find that they are unable to stay on top of their payments really should consider filing a chapter 13 bankruptcy.
A chapter 13 bankruptcy would reorganize the person’s debts so they could come up with a payment plan where they could catch up on their mortgage payment, their car payments, their taxes or their child support or spousal support, which is one of the reasons why some people consider and why it would be recommended for them to file a chapter 13 bankruptcy.
Does The Person Have To Pay Back The Debts In Full For A Chapter 13?
Chapter 13 is geared to take care of priority debts and the secured debts, and to pay those types of debts 100 percent so the person would be caught up with their repayments when they got out of bankruptcy. The unsecured creditors would be paid based upon the debtor’s disposable income or what was available to them. The unsecured creditors would be paid based upon a percentage of what was available to be paid to them from debtor’s disposable income.
For example, if the debtor had disposable income and the unsecured creditors could recover 10 percent in a liquidation scenario, then the chapter 13 plan must propose a minimum of 10 percent payment to the unsecured creditor. If the debtor did not have any money after paying off the priority and secured debts, then they would propose a 0 percent plan, where the unsecured creditors would get 0 percent.
For more information on Discharging A Debt, a free initial consultation is your next best step. Get the information and legal answers you’re seeking by calling (714) 697-8600 today.