A Chapter 13 discharge occurs once a payment plan has been completed. Bankruptcy enables individuals with regular income to work with their creditors and the courts to develop a payment plan and restructure their debt. This is an advantage to most individuals over liquidation under the chapter 7 bankruptcy.
Chapter 13 bankruptcy in Michigan is a court authorized debt consolidation plan designed to provide reasonable repayment terms and court protection for your assets such as a home or vehicle. The purpose of the program is to:
Consolidate, prioritize and reduce your debts;
Provide a consistent repayment plan with favorable terms;
Improve your credit;
Provide court protection from your creditor.
What is a Chapter 13 Discharge?
Once you have filed bankruptcy with a qualified attorney and have made routine payments on your payment plan, you then enter into the Chapter 13 discharge process. This discharge releases you from all of your dischargeable debt. Once the discharge is approved by the court, creditors may not attempt to further collect your debt. If your payment plan is not completed, you may receive a partial discharge or convert the case to a Chapter 7 bankruptcy. You qualify for this discharge as long as you have made your payments on your plan, have not received a prior Chapter 13 discharge within two years of your Chapter 13 bankruptcy filing date, have not received a Chapter 7 discharge within 4 years of your Chapter 13 filing date, and completed all the required financial management courses instructed to the court system.
According to the U.S. Courts, "A chapter 13 debtor is entitled to a discharge upon completion of all payments under the chapter 13 plan so long as the debtor: (1) certifies (if applicable) that all domestic support obligations that came due prior to making such certification have been paid; (2) has not received a discharge in a prior case filed within a certain time frame (two years for prior chapter 13 cases and four years for prior chapter 7, 11 and 12 cases); and (3) has completed an approved course in financial management (if the U.S. trustee or bankruptcy administrator for the debtor's district has determined that such courses are available to the debtor). 11 U.S.C. § 1328. The court will not enter the discharge, however, until it determines, after notice and a hearing, that there is no reason to believe there is any pending proceeding that might give rise to a limitation on the debtor's homestead exemption. 11 U.S.C. § 1328(h).”
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Chapter 13 Discharge Frequently Asked Questions
How long does a Chapter 13 discharge take?
Once the discharge process begins, it can take 6-8 weeks for the discharge to occur. This process starts once you have completed your payment plan over 3-5 years and meet all other requirements. The Chapter 13 Trustee will do a final audit to make sure all payments have been completed.
Are any debts discharged in Chapter 13?
To better understand what a discharge means under a Chapter 13 bankruptcy, it is important to know what types of debt are dischargeable and what are your debt obligations.
Priority debt is difficult to remove from your payment plan. Most dischargeable debt is considered a non-priority and often unsecured debt. Examples of dischargeable debt includes:
- medical bills
- repossession and foreclosure deficiencies
- personal loans from family or friends
- credit card debt
- past-due utility bills.
In most cases, once you complete your Chapter 13 payment plan, you are relieved from this debt. If your dischargeable debt is secured, you must either continue making your payments on it during your bankruptcy or you can surrender the collateral asset (such as your car).
Can a Chapter 13 be Discharged Early?
There are four ways in which you can get a Chapter 13 discharged early:
- Convert Your Case to Chapter 7 bankruptcy - there may be reasons where it makes financial sense to convert your case to a Chapter 7 bankruptcy. The courts may grant this, thus ending your Chapter 13 early.
- Pay 100% - Chapter 13 offers a payment plan of usually reduced amounts over a 3-5-year period. You must remain in that payment plan for that time. If you can pay your creditors in full, you can then end your Chapter 13 bankruptcy.
- Hardship Discharge - If you can prove to the courts that you are unable to complete your payment plan during a Chapter 13 bankruptcy, you may be able to qualify for a hardship discharge.
- Modified Plan - Some courts may allow you to modify your plan to pay more and end your payment plan early. You will have to remain in the payment plan for at least 36 months.
How will my credit score be affected after a Chapter 13 discharge?
If you are making your scheduled plan payments, you should expect to see an increase in your credit score throughout the Chapter 13 process and after discharge. The two main components of your credit score are your debt-to-income ratio and recent payment history. These 2 factors alone influence 65% of your credit score. The Chapter 13 plan focuses on reducing debt (i.e. straight principal payments on unsecured debt, court discharge eliminates unpaid unsecured debt balances, etc.) and restores timely payment to credit with no late reports to the credit bureaus. By positively influencing these two main credit factors, you should expect an increased credit score at the completion of your Chapter 13 plan.
While you are in a Chapter 13, a notation will be on your credit report. That notation will clear from your credit report 2-4 years after your discharge.
Chapter 13 Attorneys in Michigan
Acclaim Legal Services specializes in helping people in Michigan gain a fresh financial start through the use of a Chapter 13 Reorganization Plan or a Chapter 7 Fresh Start program.
The goals for our clients are always to:
- Improve and repair their credit
- Resolve emergency issues such as home foreclosure, car repossession, wage garnishments, etc. Filing for bankruptcy offers court protection from creditors as soon as the case is filed. We offer same day legal protection.
- Create a stable financial future through debt elimination, debt consolidation or debt settlement.
- Minimize and eliminate the stress that comes with financial difficulties and uncertainty.
We have been in practice for over 17 years and have over 120 years of combined legal experience in debt resolution law to offer our clients. We have six convenient offices located in Detroit, Southfield, Ann Arbor, Warren, Dearborn and Flint, Michigan.
Call today to speak to a qualified bankruptcy attorney at 866-261-8282 or schedule an appointment online.