Under Chapter 13, you do not have to pay non-priority unsecured debts like credit cards, medical bills, and personal loans in full. What you actually pay on those balances depends on your income, expenses, and assets, and it can range from the entire balance down to nothing. Priority unsecured debts are the exception: child support, alimony, and certain recent income taxes must be paid in full through the plan. Whatever unsecured balance remains after you finish the three- or five-year plan is wiped out by the court’s discharge order.
Priority and Non-Priority Unsecured Debt Are Treated Differently
Unsecured debt is any debt where the creditor has no claim on specific property if you default. Chapter 13 splits these debts into two buckets that determine whether repayment is required.
Priority unsecured debts are the ones Congress said must be paid first. The main examples are child support and alimony, certain income tax debts from recent years, and unpaid employee wages.1Office of the Law Revision Counsel. 11 U.S. Code 507 – Priorities Your plan must pay these in full over its life unless a particular creditor agrees to accept less.2Office of the Law Revision Counsel. 11 USC 1322 – Contents of Plan Domestic support claimants almost never agree to take less.
Non-priority unsecured debts, sometimes called general unsecured debts, are everything else: credit card balances, medical bills, personal loans, utility arrears, and most other consumer obligations. These creditors stand last in line. They receive whatever is left after administrative costs, secured claims, and priority debts are paid. That amount is set by the two tests below, and it can be as little as zero.
How Much You Must Pay Non-Priority Creditors
Two statutory tests set the floor for what your plan pays general unsecured creditors. The plan has to satisfy both, and creditors receive whichever amount is higher.
The Best Interest of Creditors Test
This test asks a hypothetical: if you had filed Chapter 7 instead, how much would your unsecured creditors have received when the trustee sold your non-exempt assets? Your Chapter 13 plan must pay unsecured creditors at least that much.3Office of the Law Revision Counsel. 11 USC 1325 – Confirmation of Plan If all your property is protected by exemptions, which is common for people without significant home equity or large bank accounts, this test produces a floor of zero.
The Disposable Income Test
This one looks forward. If the trustee or an unsecured creditor objects to your plan, you must commit all of your projected disposable income to the plan for the full commitment period.3Office of the Law Revision Counsel. 11 USC 1325 – Confirmation of Plan Disposable income is your current monthly income minus what you reasonably need for living expenses like housing, food, transportation, health care, and child support. For above-median-income filers, allowable expenses are set using standardized IRS figures rather than actual spending.4United States Department of Justice. IRS National Standards for Allowable Living Expenses
The commitment period itself is tied to your income. If your household income is below your state’s median for a household your size, the plan runs three years, though the court can extend it for cause. If your income meets or exceeds the median, the period is generally five years. No plan can run longer than five years.5United States Courts. Chapter 13 – Bankruptcy Basics
The practical effect: if your income barely covers reasonable expenses, there may be little or no disposable income left for unsecured creditors. A plan paying zero percent to general unsecured creditors can be confirmed as long as both tests are satisfied.5United States Courts. Chapter 13 – Bankruptcy Basics If you earn well above the median and your necessary expenses are modest, you could end up paying a large percentage, or even 100%, of your unsecured debt.
Secured Debt Arrears Shrink the Pot
One factor that surprises people is how catching up on secured debts crowds out unsecured creditors. If you’re behind on a mortgage or car loan, those arrears must be paid through the plan alongside your ongoing payments. Secured claims and priority claims are satisfied before general unsecured creditors see anything, so every dollar going toward mortgage arrears is a dollar that won’t reach your credit card companies. A debtor with $15,000 in mortgage arrears and $40,000 in credit card debt will likely pay unsecured creditors a much smaller percentage than someone with the same income but no arrears.
The Discharge Wipes Out What You Didn’t Pay
Once you complete every payment the plan requires, the court issues a discharge order. That order eliminates your personal liability for the remaining balances on qualifying unsecured debts. The portion you didn’t pay through the plan simply goes away.6Office of the Law Revision Counsel. 11 U.S. Code 524 – Effect of Discharge Creditors are permanently barred from suing you, calling you, or trying to collect the discharged amounts.
The discharge doesn’t happen the instant you make your final payment. The trustee files a final accounting and the court processes the discharge after confirming you’ve met all requirements, which typically takes several months. To qualify, you must certify that all domestic support obligations are current, complete an approved financial management course, and not have received a discharge in a prior Chapter 7 case within four years or a prior Chapter 13 case within two years before your current filing date.7Office of the Law Revision Counsel. 11 USC 1328 – Discharge
Discharged debt is not taxable income. Unlike debt forgiveness outside of bankruptcy, where cancelled amounts generally count as income on your tax return, a bankruptcy discharge is specifically excluded.8Internal Revenue Service. Publication 908 Bankruptcy Tax Guide You won’t receive a 1099-C for the wiped-out balance and you don’t have to report it.
Unsecured Debts That Don’t Get Wiped Out
Not every unsecured debt disappears at the end of Chapter 13. Certain categories are carved out by statute and survive even after you complete all payments:
- Student loans, unless you win a separate adversary proceeding proving repayment would cause undue hardship, which is a notoriously difficult standard to meet.
- Criminal restitution and fines included in a criminal sentence.
- Debts obtained through fraud or a materially false financial statement, if the creditor proves it.
- Debts arising from death or personal injury caused by operating a vehicle while intoxicated.
- Certain tax obligations that don’t qualify as priority claims under specific timing rules.
- Civil judgments for willful and malicious injury resulting in personal injury or death.
You still owe the full remaining balance on these debts when your case closes.7Office of the Law Revision Counsel. 11 USC 1328 – Discharge Chapter 13 will help you manage them over three to five years, but it won’t eliminate them.
What Happens if You Can’t Finish the Plan
The discharge assumes you complete the plan. If a job loss, medical emergency, or divorce makes that impossible, three options exist, and each affects whether the unpaid unsecured balance actually gets wiped.
You can ask the court to modify the plan. You, the trustee, or any unsecured creditor can request a modification that raises or lowers payments, extends or shortens the timeline, or adjusts how creditors are paid.9Office of the Law Revision Counsel. 11 U.S. Code 1329 – Modification of Plan After Confirmation The modified plan still can’t exceed five years from the date of the original first payment. This is the usual response to a temporary income drop.
If modification won’t work, you can request a hardship discharge, which is a partial discharge granted before you’ve finished all payments. The court will grant it only if your failure to complete payments is due to circumstances beyond your fault, unsecured creditors have already received at least as much as they would have in a Chapter 7 liquidation, and modification isn’t feasible.7Office of the Law Revision Counsel. 11 USC 1328 – Discharge A hardship discharge is narrower than a completion discharge, so more categories of debt survive.
The last option is to convert the case to Chapter 7 if you qualify, or ask the court to dismiss it. Dismissal lifts the automatic stay and returns you to where you started with creditors, minus whatever the trustee already distributed. Conversion restarts the case under Chapter 7 rules, where non-exempt assets are sold and qualifying debts are discharged without a repayment plan.