Filing for Chapter 13 bankruptcy can provide relief to individuals struggling with overwhelming debts. It offers a structured repayment plan to regain financial stability. However, even with the best intentions, unforeseen circumstances can arise. When a debtor faces difficulties in completing their repayment plan, a “hardship discharge” may give them some form of relief. But there are eligibility criteria for obtaining it.
What is a hardship discharge?
A hardship discharge is a legal provision available to Chapter 13 debtors. It applies to those who find themselves unable to fulfill their repayment plan due to circumstances beyond their control. It acts as a safety net if an individual face unexpected challenges.
To qualify for a hardship discharge, debtors must meet specific conditions:
- Their inability to complete plan payments should result from circumstances beyond their control.
- They should not be at fault for the failure.
- Creditors must have received at least the same amount they would have received in a Chapter 7 liquidation case.
- Modifying the existing repayment plan should not be a feasible option.
If granted, a debtor may get a chance to obtain a discharge despite not completing the plan as originally proposed.
Grounds for a hardship discharge
One common situation that may call for a hardship discharge is a severe injury or illness. It must prevent the debtor from securing employment sufficient to fund even a modified repayment plan. Unexpected life events, such as a natural disaster or prolonged unemployment, could also qualify as grounds for a hardship discharge.
Limitations of the hardship discharge
It is crucial to note that the hardship discharge is more restrictive than the typical discharge granted in Chapter 13 bankruptcy. It does not apply to debts that are nondischargeable in a Chapter 7 case. This means that certain obligations, such as child support, alimony and certain tax debts, will remain unaffected by the discharge.
Chapter 13 hardship discharge provides a lifeline for debtors facing unforeseen challenges. But it is important to understand its limitations and seek legal counsel to navigate the complexities of the bankruptcy process effectively.