Chapter 7 Debts

• In a Chapter 7 bankruptcy, a debtor's assets, if any, are liquidated, the proceeds are paid to creditors and the debt is discharged. However, certain debts cannot be discharged under a Chapter 7 bankruptcy. Secured debts are not dischargeable, and the creditor may repossess or foreclose on the collateral. If the debt resulted from the debtor's improper or illegal actions, the court will exclude these debts from the bankruptcy. Alimony and child support payments, debts resulting from malicious and willful property damage, debts owed to a government agency or guaranteed by the government and certain co-op or condo fees cannot be included. Personal injury debts resulting from the debtor's driving while intoxicated are also nondischargeable.
  
  

Chapter 13 Debts

• A Chapter 13 is a reorganization of an individual's debts that allows him to repay his creditors over a three- or five-year period. Those seeking to file a Chapter 13 bankruptcy must have a regular income that is sufficient to repay debts. Debtors do not receive a discharge until the end of the repayment period. U.S. bankruptcy law allows debtors to include some types of debts prohibited under Chapter 7. For example, under Chapter 13, a debt for malicious and willful property damage may be included. Debtors make monthly payments to a trustee who then disburses the funds according to the schedule approved by the judge.
  
  

Chapter 13 Hardship Discharge Debts

• If a debtor receives a Chapter 13 hardship discharge, only the debts allowed under Chapter 7 can be discharged. In addition, the plan must have made payments to creditors equal to or greater than the amount the creditors would have received under a Chapter 7 filing. Because the Chapter 13 rules allow greater flexibility in the types of debts you can include, you may find that you will remain responsible for certain obligations after the discharge.
  
  

Debtor's Responsibility for Chapter 13 Plan Failure

• If a debtor is unable to meet the plan payments, the court will first decide whether a modified plan is possible. If not, the court may approve a hardship discharge. The inability of the debtor to meet payments under the Chapter 13 plan must be the result of circumstances beyond his control. For example, if the debtor suffers a disabling illness or injury that makes him unable to earn enough to handle a modified plan, this should be sufficient grounds for a hardship discharge.