Chapter 13 bankruptcy filers generally receive their discharge when they complete their repayment plan, but the Chapter 13 bankruptcy repayment plan is in place for either three or five years. During this time, some may experience a significant change of circumstance that could prevent them from completing their Chapter 13 repayment plan. If you experience a significant change during your Chapter 13 repayment plan, you may be able to request a hardship discharge from the bankruptcy court.
What is a Chapter 13 Hardship Discharge, and Who is Eligible?
Chapter 13 hardship discharge is a discharge granted by the bankruptcy court before the successful completion of the repayment plan. To receive a hardship discharge, Chapter 13 filers must file a motion with the court and meet the following eligibility requirements:
- Chapter 13 bankruptcy filer failed to make their payments due to circumstances out of their control.
- Unsecured creditors of the filer have received as much money as they would have been eligible to receive if the Chapter 13 petitioner had originally filed Chapter 7 bankruptcy.
- A modification of the Chapter 13 repayment plan is not a viable solution to the changed circumstances.
What Changed Circumstances Justify a Hardship Discharge?
Chapter 13 bankruptcy petitioners seeking to qualify for the hardship discharge must experience a change in circumstances that is not their fault. The bankruptcy will expect the petitioner to show a serious and permanent reason that prevents them from successfully fulfilling the terms of their repayment plan. An example of this type of serious, permanent situation may be a serious and permanent medical condition that arose post-filing. A temporary job loss or decrease in pay is not sufficient to qualify for a hardship discharge.
What Debt Are Discharged by a Hardship Discharge?
When a Chapter 13 bankruptcy trustee issues a hardship discharge, it is similar to the Chapter 7 bankruptcy discharge. The Chapter 13 hardship discharge only wipes out dischargeable, nonpriority, unsecured debts. Since the Chapter 13 bankruptcy filer is no longer making their payments, they can’t catch up on missed mortgage payments, car payments, or pay off nondischargeable priority debts. Generally speaking, the following types of debts are not eliminated by a Chapter 13 hardship discharge: priority obligations, secured debts, student loans, or any debts that would not be eligible for discharge in Chapter 7.
If you have questions about filing for a Chapter 13 hardship discharge or want to discuss filing bankruptcy, please don’t hesitate to get in touch. Most bankruptcy offices in the Chattanooga area don’t have a single Consumer Bankruptcy Specialist on staff. Our office is the only one in Chattanooga with two. You are in good hands with Kenneth C. Rannick P.C.