Hardship Discharge in Chapter 13

Typically in a Chapter 13 case a debtor proposes (and the Court approves) a plan whereby the Debtor is responsible to pay a certain amount of money to a trustee each month for a certain period of time (usually 3-5 years). Assuming the debtor makes those payments each month for however long the plan requires, the debtor will receive a discharge of most of his/her other debts at the end of the plan.

What happens when something happens that the debtor cannot control that makes it such that he/she cannot complete the plan and also cannot modify the plan in a way that would be confirmable?

The bankruptcy code considered this possibility and allows, in limited circumstances, for something known as a “hardship discharge.”

How does a debtor get a hardship discharge? The debtor must file a motion to request such a discharge. In that motion the debtor must show three things: 1) The debtor’s failure to complete his/her plan was due to circumstances that he/she cannot be held responsible for; 2) All of the debtor’s unsecured creditors have already received as much money as they would have received had the debtor filed chapter 7 bankruptcy instead of chapter 13; and 3) Modification of the plan is not feasible.

For obvious reasons, if the debtor caused the circumstances that makes him/her fail to complete his/her plan, then the debtor will have to live with those consequences.

As it relates to the second point mentioned above, Chapter 13 has certain advantages for debtor that Chapter 7 does not have and so Chapter 13 is, oftentimes, preferable to Chapter 7. Therefore, the bankruptcy code provides protections for creditors when debtors file Chapter 13 requiring that any creditor receive at least as much in any Chapter 13 that they would get in Chapter 7.

Finally, if modification is possible, the court will require the debtor to do that rather than grant a hardship discharge.

If you are in a Chapter 13 case and meet all the requirements above, speak with a qualified bankruptcy attorney about requesting a hardship discharge.