Under limited circumstances, a debtor who has filed a Chapter 13 may receive a discharge of their debts if a particular unforeseen hardship arises during the Chapter 13 plan. The court may only give the hardship discharge if
1) the debtor's failure to complete plan payments is due to circumstances beyond the debtor's control and through no fault of the debtor;
(2) creditors have received at least as much as they would have received in a chapter 7 liquidation case; and
(3) modification of the plan to a Chapter 7 is not possible.
The types of debts that are discharged through this process cannot be larger than those available under a Chapter 7.
What qualifies as a Hardship?
The answer is very fact specific and judges have a large amount of discretion in determining what qualifies. Some things that may qualify include a debtor suffering a severe personal injury which leaves the debtor unable to work. It may also include loss of a job and not being able to find replacement work despite significant efforts on the debtor's part. Of course, for a debtor to qualify for this discharge, the Chapter 13 plan must not be able to be modified to a Chapter 7 bankruptcy program. Give us a call to discuss your specific situation if you are currently in a Chapter 13 and want to see about receiving a hardship discharge. Your attorney can fill you in on contextualized definitions of hardship relating to your case.
Like with a normal Chapter 13 discharge, Remember that even with a hardship discharge, you may still have to manage long-term credit obligations, such as student loans, palimony, and taxes to the federal, state, and local government. Although it is possible to discharge certain income taxes, it is almost never possible to discharge other taxes, such as sales taxes and monies owed to the federal government for tax fraud.
It's not always financially wise to exercise your option for a hardship discharge motion. In some cases, it makes more sense to work with individual creditors to waive fees, restructure your plans, and retool your budget based on your new, reduced income generation capacity. In other words, before rushing back to the courts -- which can be expensive in and of itself -- look for other means to ameliorate your financial hardships.
Perhaps you can borrow from a family member or create longer term repayment plans for your credit obligations. Perhaps you can lean on social services, such as Medicare, to take care of pressing medical bills. You might also look into converting your Chapter 13 filing to a Chapter 7 motion at some point in the future to simplify your proceedings.
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