If you cannot complete your Chapter 13 repayment plan, you can file a motion with the bankruptcy court asking for a hardship discharge.
(To learn more about Chapter 13 bankruptcy and the Chapter 13 repayment plan, see our Chapter 13 Bankruptcy area.)
Requirements to Get a Hardship Discharge
The court will grant your request for a hardship discharge only if three conditions are met:
- You failed to complete your plan payments due to circumstances “for which you should not justly be held accountable.” Your burden is to show the maximum possible misery and the worst of awfuls—that is, more than just a temporary job loss or temporary physical disability. Proving that your condition is permanent is usually key; you may need to bring medical evidence to court.
- Based on what you have already paid into the plan, your unsecured creditors have received at least what they would have received if you had filed for Chapter 7. (This is typically a hard condition to meet unless you have little or no nonexempt property.)
- Modification of your plan is not practical. To meet this requirement, you do not have to file a motion for modification and lose it; you just have to show the bankruptcy court that you wouldn’t be able to make payments even under a modified plan.
Hardship Discharges: Debts That Are Not Discharged
If the court grants your motion for a hardship discharge, only unsecured, nonpriority, dischargeable debts are discharged. The following debts typically are not wiped out in a hardship discharge:
- priority debts
- secured debts
- arrears on secured debts
- debts you didn’t list in your bankruptcy papers
- student loans
- most federal, state, and local taxes, as well as any amounts you borrowed or charged on a credit card to pay those taxes
- child support, alimony, and debts resulting from a divorce or separation decree
- fines or restitution imposed in a criminal-type proceeding
- debts for death or personal injury resulting from your intoxicated driving
- debts for dues or special assessments you owe to a condominium or cooperative association
- debts you couldn’t discharge in a previous bankruptcy that was dismissed due to fraud or misfeasance, and
- debts you owe to a pension, profit-sharing, stock bonus, or other plan established under various sections of the Internal Revenue Code.
Hardship Discharges: Debts That Are Not Discharged If the Creditor Successfully Objects
Some debts will be discharged in a hardship discharge unless the creditor files a successful objection to the discharge in court. These debts include:
- debts incurred through your fraudulent acts, including using a credit card when you knew you would be unable to pay the bill
- debts from willful and malicious injury you caused to another person or property, and
- debts from embezzlement, larceny, or breach of trust (fiduciary duty).
If you have a debt that falls into one of these categories, your best strategy is to do nothing and hope the creditor does the same. If the creditor objects, the court will examine the circumstances in which you incurred the debt to determine whether or not it can be legally eliminated. If you want the debt to be discharged, you should respond to the creditor’s objection.