What is a Hardship Discharge in Chapter 13 Bankruptcy?

If you are filing for Chapter 13 bankruptcy or you have already filed for Chapter 13 bankruptcy, you likely have some idea about how this process works. Unlike a Chapter 7 bankruptcy that results in your non-exempt property being liquidated to repay creditors so that you can obtain a relatively quick discharge, Chapter 13 bankruptcy is a much longer process. For most consumer debtors, the Chapter 13 bankruptcy process lasts between three and five years, after which point the debtor can have remaining debts discharged. Yet sometimes the debtor needs to seek a discharge earlier in the case. In such situations, it is important to learn more about a hardship discharge in a Chapter 13 bankruptcy case.

Understanding How Chapter 13 Bankruptcy Works

In order to understand why a hardship discharge may be necessary, you will need to have a clear understanding of the Chapter 13 bankruptcy process. As part of a Chapter 13 bankruptcy case, the debtor develops a repayment plan through which she or he will make payments on debt over that period of three to five years. Once the terms of the repayment plan have been completed, the debtor can have remaining eligible debt discharged.

Since this type of bankruptcy case requires steady payments over a number of years, the debtor must be able to show that she or he earns an income that will allow for the completion of the repayment plan. As such, Chapter 13 bankruptcy is often known as a wage-earner’s bankruptcy. But what happens if the debtor loses his or her job after making half of the required payments? Or what will happen if the debtor cannot complete the terms of the repayment plan after making a clear effort? Here is where a hardship discharge can become relevant.

Learning About the Hardship Discharge

In some Chapter 13 bankruptcy cases, the court may grant a discharge before you complete the entire repayment plan that would allow you to seek a discharge of your remaining debts. However, obtaining a hardship discharge is not easy, and you should always work with an experienced Oak Park bankruptcy lawyer on any aspect of your bankruptcy case.

In general, to be eligible for a Chapter 13 hardship discharge, you will need to prove the following:
  • You were unable to complete the terms of your repayment plan for a change in circumstances that was not your fault;
  • Unsecured creditors in your bankruptcy case received the same amount (or more) that they would have received if you had filed for Chapter 7 bankruptcy; and
  • Modifying your Chapter 13 bankruptcy repayment plan is not practicable.
What constitutes a change in circumstances that is beyond your control or that was not your fault? In most cases, the change in circumstances must be significant and must be permanent, such as being diagnosed with a permanent disabling condition or injury that will prevent you from working and meeting the terms of the repayment plan. Simply losing a job due to a layoff typically will not be sufficient to obtain a hardship discharge.

Contact a Chapter 13 Bankruptcy Lawyer in Oak Park

If you have questions about a Chapter 13 bankruptcy case, one of our Oak Park consumer bankruptcy attorneys can help. Contact the Emerson Law Firm today to get started on your case.


See Related Blog Posts:
Can I File for Bankruptcy if I Owe Money to a Loved One?
Can I Keep My Car if I File for Personal Bankruptcy?

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