Chapter 13 bankruptcy helps debtors get themselves out of a deep hole, but it doesn’t cure all of your debt problems. Chapter 13 payment plans can be extremely difficult to uphold. One slip-up in your life and payments are delayed.
Unforeseen expenses, job loss, health difficulties or other unplanned life events can make Chapter 13 just as difficult as being buried in debt without the bankruptcy protections. But all is not lost. Provision 11 U.S.C. § 1328(b) allows you to file a motion with the bankruptcy court known as a hardship discharge.
What is a hardship discharge?
A hardship discharge can allow you to receive an early discharge from some of your debts. But there are some strict requirements in making a case:
- You don’t have the ability to complete payments due to circumstances “for which you should not justly be held accountable.” The goal is to show the maximum possible misery in which the circumstances will not change. Temporary job loss or disability normally isn’t enough to make a case. Medical evidence that proves permanent injury or other circumstances like death and separation might also work.
- A modification of the Plan will not fix the problem. For temporary problems, the Plan can be extended or temporarily lowered. The aftermath of the Katrina hurricane provided the conditions in which thousands of people wouldn’t have benefitted from a short term fix.
- Based on what you’ve already paid into the plan, the unsecured creditors received as much as they would have if you had filed a Chapter 7 instead. If you don’t own a house, or the house has no equity, this condition can be easily met. If you have equity, it might be difficult to meet this condition.
Not all debts are discharged
Only unsecured, non-priority dischargeable debts can be discharged, so there are many exceptions you need to know prior to filing. To successfully file a motion for hardship discharge, you need an attorney. If you qualify, you can convert your case into a Chapter 7 or dismiss your Chapter 13 and file a new case. In some cases, a hardship discharge might be the solution you need, but you may not meet the requirements.