The Hardship Discharge

After a debtor completes a Chapter 13 plan and makes all payments to the bankruptcy Trustee, he will receive a discharge of debt which basically frees him of the obligation to pay his debts.  There are certain limited circumstances in which a debtor can receive a discharge even if he or she has not completed the payments to be made under the Chapter 13 plan.  This is called a “hardship discharge.”  A hardship discharge may be granted if certain criteria are met.

Conditions of a Hardship Discharge

The criteria for a hardship discharge can be found in Section 1328 of the Bankruptcy Code.  That section states that after the plan has been confirmed and notice given, the Court may enter a discharge even if all plan payment have not been made, only if certain conditions are met.

The first condition listed in the Code is that the debtor’s failure to complete his payments is due to circumstances for which the debtor should not justly be held accountable.  In other words, the circumstances must be beyond the debtor’s control.  There needs to be a permanent change in conditions in the debtor’s life, such as a permanent disability or illness.

The second condition that must be met is that the value of property distributed under the bankruptcy plan to the unsecured creditors is not less than the amount the unsecured creditors would have received if the debtor was in a Chapter 7 case.  If there is little to no non-exempt property in the estate, then this condition will likely be met.

The final condition that must be met in order for the court to issue a hardship discharge is that a modification of the plan is impracticable.  If there is a permanent illness or injury, the debtor might not be able to handle even a modified payment.  Additionally, if the plan is at the very end of its term it might not make sense to modify it.

If you are wondering if filing bankruptcy and receiving a discharge of your debts is in your best interest, please set up a free consultation at one of our offices.