Many times, people in a chapter 13 bankruptcy encounter financial problems down the road that make it impossible for them to complete their payment plan. However, they still need to discharge their debts in order to get a fresh start in life.
They could convert to a chapter 7, but sometimes they need to discharge a debt that cannot be wiped out in a chapter 7 or a 7 would result in the liquidation sale of their home. That is where the "hardship discharge" comes in.
When Can I Get One?
A bankruptcy court may grant you a discharge in chapter 13, even though you have not made all of your payments, as long as:
- Your failure to complete the plan is due to circumstances beyond your control;
- Modifying your plan payment is not practicable; and
- At the time of the discharge, your plan has paid out at least as much as creditors would have received if your assets had been sold in a chapter 7.
The circumstances leading up to the request must also not be temporary or short term. There are limits on what can be discharged in a chapter 13, so you should talk with me about this.
However, if you really need a discharge, and do not want to risk losing your home or another valuable asset, a hardship discharge may well be the solution you need.