When you file for Chapter 13 bankruptcy, you don’t normally receive a discharge until you complete your repayment plan. But a Chapter 13 plan typically lasts three to five years. If you experience a significant change in your circumstances during bankruptcy that prevents you from being able to pay off your plan, you may be able to ask the court for a hardship discharge. Read on to learn more about the hardship discharge in Chapter 13 bankruptcy.
For more information on what debts you can wipe out in bankruptcy, see our topic area on Debt Relief and Bankruptcy.
A hardship discharge is essentially a discharge the court grants you before you complete all of the required payments under your Chapter 13 repayment plan. In order to receive a hardship discharge, you must file a motion with the court and satisfy all three of the following conditions:
To qualify for a hardship discharge, the change in your circumstances must not be your fault. In addition, you must typically show that there is a serious and permanent reason or condition that prevents you from being able to complete your plan (such as a permanent medical condition that arose after filing your case). Temporarily losing your job or experiencing a decrease in income is not sufficient.
Before you can receive a hardship discharge, you must show the court that your Chapter 13 plan has already paid your unsecured creditors as much money as they would have received in Chapter 7 bankruptcy. In general, how much money your unsecured creditors would have received in Chapter 7 bankruptcy depends on the amount of nonexempt property you own. If you have a significant amount of nonexempt property and your Chapter 13 plan was recently confirmed (approved), you may not have paid your unsecured creditors enough to qualify for a hardship discharge. (Learn more about how much you must repay unsecured creditors in How Chapter 13 Plan Payments Are Determined.)
To learn more about whether you may have nonexempt property, see our Property and Exemptions in Bankruptcy topic area.
If your circumstances change after filing for Chapter 13 bankruptcy, bankruptcy laws allow you to modify your plan accordingly. For example, if your income goes down during bankruptcy, you may be able to modify your plan to reduce your payment amount. To receive a hardship discharge, you must show the court that modifying your plan is not feasible or practical – that your circumstances are so dire that even a modification would not help you complete your plan.
A Chapter 13 hardship discharge is similar to a Chapter 7 bankruptcy discharge because it wipes out your dischargeable nonpriority unsecured debts only. Because you are no longer making Chapter 13 plan payments, you can’t catch up on your missed mortgage or car loan payments or pay off your nondischargeable priority obligations.
In general, the Chapter 13 hardship discharge doesn’t eliminate the following types of debts: