How to Obtain a Hardship Discharge in Chapter 13 Bankruptcy
Prior to filing a Chapter 13 bankruptcy, debtors generally undergo credit counseling – which helps ensure that they’re able to pay their creditors back with smarter spending habits – the development of a repayment plan, and paperwork reviewed and filed with the help of an attorney.
Child support, alimony and some taxes are non-negotiable, and student loan debt is never discharged. The first payment is due 30 days after filing; it will compile all debt included in the bankruptcy filing, and will be sent to a trustee, who will then disperse funds to creditors. A few weeks later, a 341 meeting is scheduled for the debtor, attorneys, and trustee to meet, making sure that everyone is on the same page.
But as with many things, problems can occur that throw even the best-laid financial plans out the window. Debtors can lose a job, making it impossible to make payments, or someone in the family can experience a catastrophic illness.
In cases like this, a hardship discharge might be a possibility. However, the changes in circumstances would have to be significant in order to essentially turn a Chapter 13 bankruptcy, which establishes a payment plan, to a Chapter 7, which wipes out a great deal of debt.
Can you get a Chapter 13 hardship discharge?
If you are unable to complete your three- or five-year repayment plan, you may file a motion with the court for a hardship discharge. You must, however, meet the following criteria:
- You failed to meet your payment due dates because of circumstances beyond your control.
- Your unsecured creditors have already been paid more than if you’d filed Chapter 7 and liquidated some of your belongings in order to do so.
- You can’t realistically modify your agreement.
While a permanent medical condition is generally reason enough for a hardship discharge, losing your job or experiencing a cut in pay don’t.
The trickiest piece of the puzzle
Proving to the court that you have paid as much through your Chapter 13 payment plan as you might have paid if you’d filed Chapter 7 really depends on how much property you own. For Chapter 7, both state and federal laws allow exemptions, but if the property that you own is more than what is allowed, you’ll need to pay the difference to creditors before a judge will sign off on a bankruptcy. If under Chapter 13 and you have paid that difference – and you are up to date on any late mortgage or car payments – you may qualify for a hardship discharge.
Call an attorney to see if you qualify
Chapter 13 bankruptcy is confusing even if you do end up in a situation where you’re having a hard time keeping the agreement you made in good faith. For more information and to find out if you qualify for debt modification or a hardship discharge, please contact Maxwell Dunn’s team at 248-246-1166.