What Is a Chapter 13 Hardship Discharge?
In Chapter 13 bankruptcy, a hardship discharge is a court-authorized elimination of debt when a debtor is prevented from completing the repayment plan due to financial hardship that arose while their case is open.
Under normal circumstances, Chapter 13 repayment plans are scheduled to last three to five years, and a discharge of remaining debt (if any) doesn’t occur until the successful completion of a plan. When the debtor fails to complete this plan for reasons within their control, they normally don’t receive a discharge and the court dismisses the bankruptcy case.
A hardship discharge can provide financial relief when someone loses a job or takes on unavoidable debt, such as medical debt, without canceling the Chapter 13 plan.
Chapter 13 Hardship Discharge Requirements
Although not often or easily issued, a Chapter 13 hardship discharge can help bankruptcy filers achieve debt relief when unforeseen circumstances prevent them from completing their Chapter 13 plans.
Qualifying for a hardship discharge has three important criteria:
- The debtor wasn’t at fault for the circumstances that made them unable to complete their Chapter 13 plan, and these circumstances were beyond their control;
- The creditors involved in the Chapter 13 repayment plan have received at least as much as they would have received if the case was filed as a Chapter 7 case;
- It’s not practical to modify the plan.
These criteria can be met in a variety of circumstances, such as when a debtor becomes so severely injured or ill that they become unable to work for earnings that would otherwise support the Chapter 13 plan.
Limitations of a Hardship Discharge
Not all debt is subject to discharge for hardship, even when someone on a Chapter 13 plan meets all of the requirements for such a discharge. Usually, only unsecured nonpriority debts may be discharged to relieve the debtor’s financial burden.
Typically, hardship discharges will NOT wipe out debt such as the following:
- Priority debts
- Secured debts
- Debts not listed in the bankruptcy filing
- Student loans
- Most taxes or debt on credit used to pay taxes
- Domestic support obligations (spousal support/alimony, child support, etc.)
- Liability for personal injury awards as a result of intoxicated driving
There are many other debts that a hardship discharge will not eliminate, so consult with an experienced bankruptcy attorney before pursuing this option when you’re experiencing a hardship.
Contact a Bankruptcy Lawyer for Help
A Chapter 13 hardship discharge can provide much-needed relief to individuals struggling with debt. Achieving this unique discharge can be difficult, however, and success can hinge on the professional experience and skill that a bankruptcy lawyer can offer.
If you wish to learn more about this topic and how it can apply to your unique legal situation, contact Buchalter & Pelphrey Attorneys At Law today.