What is a hardship discharge in a Chapter 13 bankruptcy?

A hardship discharge is when the bankruptcy court decides to end your bankruptcy and approve a discharge earlier than was originally scheduled.

There are limited circumstances under which the debtor may request the court to grant a “hardship discharge” in a Chapter 13 case even though the debtor has failed to complete plan payments. Generally, such a discharge is available only to a debtor whose failure to complete plan payments is due to circumstances beyond the debtor’s control, and through no fault of the debtor, after creditors have received at least as much as they would have received in a Chapter 7 case and when modification of the plan isn’t feasible. Injury or illness that precludes employment sufficient to fund even a modified plan may serve as the basis for a hardship discharge.

Consult with an attorney in order to determine if a hardship discharge makes sense in your individual situation because different bankruptcy judges across the country apply different standards as to what “hardship” means. Your attorney will know how the bankruptcy court in your area views “hardship.” If the bankruptcy judge does not approve the hardship discharge, you may still be able to convert to a chapter 7 bankruptcy for additional protection.  Your attorney will know how the bankruptcy court in your area views “hardship,” and whether discharge or conversion is the best option for your situation.

Case Studies: Hardship Discharge in Chapter 13 Bankruptcy

Case Study 1: John’s Medical Crisis

John, a Chapter 13 bankruptcy debtor, encountered a severe medical crisis that left him unable to work and generate income to fund his modified plan. Despite his best efforts, he fell behind on his plan payments, risking the failure of his bankruptcy.

John’s attorney filed a motion for a hardship discharge, arguing that his circumstances were beyond his control and that creditors had already received the same amount they would have in a Chapter 7 case. The bankruptcy court granted John a hardship discharge, allowing him to end the bankruptcy early and obtain the necessary financial relief.

Case Study 2: Sarah’s Unforeseen Unemployment

Sarah, a Chapter 13 debtor, experienced unexpected job loss due to the closure of her company. With no alternative employment opportunities, Sarah was unable to maintain the payments required by her modified plan.

Her attorney filed a motion for a hardship discharge, emphasizing that her failure to complete plan payments was not her fault and that a modification was not feasible given her circumstances. The bankruptcy court reviewed her case and approved the hardship discharge, relieving Sarah of her bankruptcy obligations.

Case Study 3: Mark’s Debilitating Injury

Mark, a Chapter 13 debtor, suffered a debilitating injury that rendered him unable to work. His injury was severe, preventing him from generating sufficient income to fund even a modified plan.

Mark’s attorney filed a motion for a hardship discharge, presenting medical evidence and demonstrating that Mark’s condition made it impossible for him to fulfill his bankruptcy obligations. After careful consideration, the bankruptcy court granted Mark a hardship discharge, acknowledging the genuine hardship caused by his injury.