Chapter 13 Bankruptcy Discharge

Collections Training Resource
June 12, 2012 — 1,088 views  
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Declaring bankruptcy is the last resort for many individuals and businesses that are unable to repay their debts in a timely manner. However, what most people don't realize is that there are many types of bankruptcy, most of which differ based on the type of debt that's being avoided.

The Internal Revenue Service Tax Code is divided into many sections, or chapters, that define different sorts of debt collection and loan repayment. The 13th chapter describes a particular variety of bankruptcy, which is naturally referred to as chapter 13 bankruptcy.

This type of financial situation is reserved for people and organizations that are specifically unable to repay tax debts. A declaration of chapter 13 bankruptcy allows groups and individuals to set up payment plans that make their assets more difficult to reclaim while giving them a chance to make amends for their debts. This differs from chapter seven bankruptcy, which simply reorganizes holdings for sales that will make debts repayable.

The ultimate goal of declaring bankruptcy is to have debts erased from a debtor's responsibility, or discharged. When payments or loans have been discharged, a creditor is required by court order to no longer make contact with or solicit funds from him or her. Chapter 13 bankruptcy provides discharge when the payments mandated by a court-approved repayment plan have all been made. A debtor may also request a hardship charge, which allows for debts to be dissolved because repayment is made impossible by circumstances beyond his or her control.

Discharge formally takes place when the bankruptcy court clerk is directed to mail a copy of the discharge order to creditors, the U.S. trustee, the trustee of the case and the trustee's attorney. Additional contact with and solicitation of a debtor after that point can result in a creditor being held in contempt of court. 

Collections Training Resource