Do You Have to Pay Back Debt After Bankruptcy?

Whether you have to pay back debt after filing bankruptcy depends on the chapter you file and the type of debt. Chapter 7 discharges most unsecured debts without any repayment. Chapter 13 requires you to pay a court-approved amount over three to five years before the rest is wiped out. And a specific set of debts — child support, most student loans, recent income taxes, fraud debts, and government fines among them — survives either chapter and has to be paid in full.

What Chapter 7 Discharges Without Repayment

Chapter 7 is the liquidation option. The trustee sells any nonexempt property you own to pay creditors, and then the court discharges the remaining balances on most unsecured debts. Credit card balances, medical bills, personal loans, old utility bills, and deficiency balances after a repossession typically fall away. The discharge usually arrives three to four months after filing, and once it’s entered, creditors on those debts can no longer sue you, call you, or send collection letters.¹

Not everyone qualifies. Federal law uses a means test that compares your income to the median in your state for a household of your size. Income below the median generally clears you for Chapter 7. Income above the median triggers a closer look at your expenses and disposable income, and if the court decides you can afford to repay a meaningful amount, it can dismiss the case or push you into Chapter 13.²

What Chapter 13 Requires You to Repay

Chapter 13 keeps your property but binds you to a repayment plan lasting three to five years. If your income is below your state’s median, the plan is typically three years. Above the median, it generally runs five. You send a fixed monthly payment to a court-appointed trustee, who distributes it to your creditors.³

Creditors are not treated equally. Priority debts — domestic support arrears and most tax debts owed to government agencies — must be paid in full through the plan.⁴ Secured creditors must receive at least the value of their collateral. Unsecured creditors like credit card companies and medical providers often get only a small percentage of what they’re owed, calculated from whatever disposable income you have left after priority debts and reasonable living expenses.

The discharge comes only after you complete every payment. Miss enough of them and the court can dismiss the case, which brings back your original debts along with any interest that piled up in the meantime.³

Debts You Still Have to Pay No Matter Which Chapter You File

Several categories of debt survive the discharge in both Chapter 7 and Chapter 13. Filing bankruptcy does not touch them, and you remain fully on the hook.

Child Support and Alimony

Domestic support obligations are never dischargeable. They keep their full force regardless of which chapter you file, and missed payments continue to accrue.⁵ In Chapter 13, any support arrears sit at the top of the priority stack and must be paid in full through the plan before you can receive a discharge.³

Most Student Loans

Student loans generally survive bankruptcy unless you prove in a separate court proceeding, called an adversary proceeding, that repayment would impose an undue hardship on you and your dependents.⁶ The Department of Justice and the Department of Education have issued guidance directing their attorneys to recommend discharge when three conditions are met: you currently cannot repay, that inability is likely to continue, and you have made good-faith efforts to repay in the past.⁷

Recent Income Tax Debts

Income taxes from returns due within the three years before you file generally cannot be discharged. Older tax debts may qualify for discharge in Chapter 7, but only if you filed the returns on time.⁸ In Chapter 13, tax debts that count as priority claims must be paid in full through the repayment plan.

Debts You Got Through Fraud

Debts obtained through fraud, false pretenses, or a materially false written financial statement can be declared nondischargeable if the creditor files a timely objection.⁵ Running up credit card charges on luxury goods shortly before filing, with no intent to repay, is the classic example: a court may presume that debt is nondischargeable.

Government Fines and Criminal Restitution

Fines and penalties owed to a government agency, like traffic fines or regulatory penalties, survive bankruptcy. So does court-ordered restitution from a criminal conviction.⁵

HOA Fees That Come Due After You File

If you own property in a homeowner association, any fees or assessments that come due after your filing date remain your responsibility for as long as you or the bankruptcy trustee holds an ownership interest in the property.⁵ HOA arrears from before you filed may be dischargeable, but new assessments are not.

The Mortgage and the Car: How Secured Debt Works

A discharge wipes out your personal obligation to pay, but it does not remove a lien on your property. Your mortgage lender and auto lender keep their security interests in the house and the car even after your discharge.⁹ The practical result: the bank can’t sue you for the money, but it can still foreclose or repossess if you stop paying.

In Chapter 7 you have three ways to handle a secured debt:

Keep paying on the loan and keep the property.
Surrender the property to the lender and let the discharge erase any remaining balance.
Redeem the property by paying the lender its current fair market value in a lump sum, which can be less than the loan balance if the item has lost value. Redemption is only available for tangible personal property used for personal or household purposes, so it works for a car but not a house.¹⁰

When You Voluntarily Agree to Keep a Debt: Reaffirmation

A reaffirmation agreement is a voluntary contract in which you agree to stay personally liable for a debt that would otherwise be discharged. People typically sign one to keep a car loan formally in place or preserve a working relationship with a lender. The agreement has to be signed and filed with the court before the discharge is granted, and you can cancel it within 60 days after filing or before the discharge is entered, whichever comes later.¹

If you weren’t represented by an attorney when negotiating the agreement, the judge has to approve it and find that it won’t cause undue hardship and is in your best interest. If you had an attorney, the attorney must certify that you were fully informed and that the payments are manageable.¹

Once the agreement is finalized and the cancellation window closes, that debt is treated as if no bankruptcy ever happened. Fall behind later and the creditor can sue you or seize the collateral just like any other defaulted loan. Think carefully before reaffirming a depreciating asset like a car where you may owe more than the vehicle is worth.

What Happens to Co-Signers

Your discharge protects only you. It does not eliminate the liability of anyone who co-signed or jointly guaranteed a debt. In Chapter 7, creditors can go straight after a co-signer for the full amount, even while your case is still open.

Chapter 13 offers temporary shelter through a codebtor stay, which blocks creditors from collecting consumer debts from your co-signer while you are making payments under your plan.¹¹ A creditor can ask the court to lift that protection if your plan doesn’t propose to pay the debt in full, if the co-signer was the one who actually got the benefit of the loan, or if the creditor would be irreparably harmed.

When the Chapter 13 case ends, whether through completion, dismissal, or conversion, the codebtor stay lifts and the creditor can pursue your co-signer for any unpaid balance.¹¹

You Don’t Owe Income Tax on Discharged Debt

Outside of bankruptcy, forgiven debt is normally taxable income. Cancel $10,000 in credit card debt through a settlement and the IRS treats it as $10,000 you earned. Bankruptcy is the major exception. Federal tax law specifically excludes debt discharged in a bankruptcy case from your gross income.¹² You will not owe income tax on debts eliminated through your case.

There is one trade-off. The amount excluded from income must be used to reduce certain tax attributes you carry forward, such as net operating losses and tax credit carryovers. You claim the exclusion by filing IRS Form 982 with your return for the year the discharge occurred.¹³ Most consumer filers have few tax attributes to reduce, so the exclusion is a real benefit with little cost attached.

1
Office of the Law Revision Counsel. 11 USC 524 – Effect of Discharge
2
Office of the Law Revision Counsel. 11 USC 707 – Dismissal of a Case or Conversion
3
Office of the Law Revision Counsel. 11 USC 1328 – Discharge
4
Office of the Law Revision Counsel. 11 USC 507 – Priorities
5
Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge
6
Department of Justice. Student Loan Discharge Guidance
7
FSA Partners. Undue Hardship Discharge of Title IV Loans in Bankruptcy Adversary Proceedings
8
Internal Revenue Service. Declaring Bankruptcy
9
Office of the Law Revision Counsel. 11 USC 506 – Determination of Secured Status
10
Office of the Law Revision Counsel. 11 USC 722 – Redemption
11
Office of the Law Revision Counsel. 11 USC 1301 – Stay of Action Against Codebtor
12
Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness
13
Internal Revenue Service. Instructions for Form 982