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What is a “hardship discharge” in Chapter 13 bankruptcy?

In any bankruptcy case, one of the major benefits of the process is obtaining discharge of debts. In Chapter 13 bankruptcy, discharge is ordinarily dependent on the debtor successfully completing his or her repayment plan.

As we’ve pointed out in previous posts, debtors may experience changes in their financial circumstances which render them unable to complete their repayment plan, and this can serve as a legitimate basis to seek a modification of the repayment plant. Ideally, a debtor is able to complete that modified repayment plan, but there can be cases where circumstances change so drastically that they are unable to complete any repayment plan. In such cases, is a debtor unable to have remaining debts discharged? Not necessarily.

Federal bankruptcy law provides for the possibility that a financially distressed Chapter 13 debtor may qualify for a “hardship discharge.” Usually, hardship discharge is available only in cases where: (1) the debtor’s failure to complete the repayment plan is due to circumstances over which he or she had no control; (2) creditors under the plan have received at least as much as they would have received in a Chapter 7 case; and (3) it is not possible to modify the repayment plan. Modification may not be possible because of the debtor’s lack of income or because some requirement to establish a modified repayment plan cannot be met.

Those who are currently in a Chapter 13 case and who are unable to complete the plan should consider the possible of pursuing hardship discharge. One thing for debtors to keep in mind, though, is that a hardship discharge is more limited than an ordinary discharge, and debts which are non-dischargeable may still not be cleared by a hardship discharge. As with any aspect of the bankruptcy process, working with an experienced attorney is important to build the best possible case for hardship discharge. 

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