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Completing the Plan

It’s tough to complete a Chapter 13 repayment plan. That’s because people who file for Chapter 13 bankruptcy are in a fragile economic condition to begin with. All it takes is a layoff, medical emergency, divorce, or simply fatigue at living within a strict budget for so long to cause someone to fall behind on plan payments.

If your income does drop significantly, you may be able to modify your plan or get a hardship discharge. More likely, however, you will be given the choice of converting your case to a Chapter 7 bankruptcy or having it dismissed entirely. Most people faced with this choice opt to convert to Chapter 7 bankruptcy and discharge what’s left of their debts. But you might choose dismissal instead if you have nonexempt property you would be forced to part with in a Chapter 7 bankruptcy (for example, your family grand piano, which the trustee could sell for $5,000).

Just because you might not complete your Chapter 13 bankruptcy doesn’t mean you shouldn’t start it. If and when you do default, you may be in a better situation to keep your house or at least sell it for a profit. See “Using Chapter 13 to Delay Foreclosure,” above.

If you do complete your plan and meet the other Chapter 13 requirements (such as giving the trustee an annual financial report and keeping current on your taxes and any child support obligations), you will receive a bankruptcy discharge. It usually cancels whatever nonpriority unsecured debt has not been paid off in your plan, which not uncommonly is 75% or more of the unsecured debt you started with.

There are a few exceptions to the discharge, the most common of which are:

• debts you didn’t list in your bankruptcy papers
• civil judgments arising from a willful or malicious act
• debts for death or personal injuries arising from drunk driving
• back child support or alimony not paid off as part of your plan
• taxes for which you haven’t filed a return
• debts arising from your fraudulent acts (if proven by the creditor in bankruptcy court)
• court-imposed fines and restitution, and
• recent back taxes that haven’t been paid in full as part of your plan.