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What Is the Chapter 13 Discharge Time Frame?

By Christopher Coble, Esq. | Last updated on

Your small business debts have outgrown your ability to operate, but you're not ready to call it quits on your entrepreneurial dream. So before debt collection turns into a nightmare, you might consider Chapter 13 bankruptcy.

As opposed to other forms of bankruptcy, Chapter 13 may allow you to repay and discharge your debts over time, avoiding a liquidation of business assets and possibly allowing your small business to remain open. So how long does repayment last? And when will the debts be discharged under Chapter 13?

The 13th Hour

A Chapter 13 bankruptcy filing for a small business is generally pretty rare. In fact, it is only available to sole proprietors or married couples who did not form a separate legal entity for their business. It also requires the business owner to file for Chapter 13 in his or her own name, rather than the name of the company. So in many respects, a Chapter 13 filing for your small business will look similar to an individual Chapter 13 filing.

Chapter 13, unlike Chapter 7, does not require the liquidation of company assets in order to satisfy debts and provides the business with a structured repayment plan based on its income that will allow you to pay down debt over time. Generally, debtors propose a repayment plan to make installments to creditors over three to five years. Once all of the payments under the plan have been made, the debtor has completed a required course in financial management, and no other discharges have been made during the repayment plan, the debts provided for by the plan will be discharged.

Not All Debts

Sole proprietors should be aware, however, that not all debts can be discharged in Chapter 13 bankruptcy. Debt obligations that may continue include:

  • Certain long term obligations (such as a home mortgage);
  • Debts for alimony or child support;
  • Certain taxes or debts for most government funded or guaranteed educational loans or benefit overpayments;
  • Debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs; and
  • Debts for restitution or a criminal fine included in a sentence on the debtor's conviction of a crime.

If these are not fully paid or provided for under the Chapter 13 repayment plan, you may still be responsible for repayment after the bankruptcy case has concluded and other debts have been discharged.

Bankruptcy law, especially regarding Chapter 13 discharge, is complicated and has undergone major changes recently. If you have questions about the timing and scope of Chapter 13 debt discharges, consult an experienced bankruptcy attorney.

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