Filing for Chapter 13 bankruptcy allows you to deal with your debt in two ways, by coming up with a reorganization plan to pay off some of your debts while a bankruptcy judge discharges the rest, relieving you of the obligation to pay it. You might wonder, however, what will happen if you cannot go through with your repayment plan.
Sometimes life events intervene. An unexpected calamity like an auto accident could impede or cripple your efforts to pay off debt per your repayment plan. This is why bankruptcy law includes a hardship discharge as part of Chapter 13. According to the U.S. Courts website, you might be able to ask the court to grant you this type of discharge in certain situations.
Defining a hardship discharge
Your repayment plan will likely count on you earning an income so that you can pay off your debts as outlined in your repayment plan. However, a severe illness or disability could prevent you from returning to work or finding a comparable job. If you recognize your current circumstances will probably not change, you could seek a hardship discharge to clear more of your debt.
Requirements for a hardship discharge
In order to qualify for a hardship discharge, your case has to meet certain conditions. First, the circumstances necessitating a hardship discharge must be beyond your control. A court may have problems with a hardship request if you got hurt or disabled through your own actions. A court will also probably want you and your trustee to modify your existing plan first if at all possible. If you cannot change your plan to compensate for your circumstances, a court may consider a hardship discharge request.
A court might also deny a hardship discharge if it believes creditors have not received enough from the current repayment plan. As the U.S. Courts site points out, a court might not grant a hardship discharge if creditors have not received at least as much as they would have gotten in a Chapter 7 liquidation. Also keep in mind that a hardship discharge will not apply to debts that a judge would not discharge in a Chapter 7 case.