This is the technical discussion of getting aChapter 13 hardship discharge in Bankruptcy. However, you may refer to Early Chapter 13 Bankruptcy Discharge if you are a client. Often a Debtor is in the process of losing a job or becoming disabled. The Debtor may need the protection and benefits of Chapter 13. But, completing even a modified plan with lower payments might not be possible due to a disability, death, or divorce. The Debtor may still need to start a Chapter 13 for immediate protection from unsecured creditors and convert it or obtain an early discharge in a Chapter 13 later.
Through no fault of their own, a Debtor might have health problems and later needs to include medical and priority debts. Sometimes converting to a Chapter 7 is best, or there is also an early or hardship discharge when you cannot complete a plan.
Thankfully, the Debtor can file a Chapter 13 and obtain the early hardship discharge or convert to a Chapter 7. It allows the Debtor to file and immediately get the protection they need but delay discharge until required. Often the early discharge is necessary if the Debtor becomes disabled.
Obtaining an early Chapter 13 Hardship Discharge in Bankruptcy
Unsecured debt that incurs after filing a Chapter 13 can be added to the petition, and you may be able to discharge those medical and secured debts later by conversion to a Chapter 7. Also, Chapter 13 debtors can ask for an early financial hardship discharge in a 13 when the bankruptcy court grants a motion under 11 USC §1328(B), and the following is true:
- The Debtor’s failure to complete payments is due to circumstances beyond the Debtor’s control through no Debtor’s fault.
- According to the bankruptcy code, unsecured creditors receive at least as much as they received in a Chapter 7 liquidation case.
- Modification of the repayment plan is not possible.
What Are The Three Types Of Chapter 13 Plans And Discharges?
A discharge is the permanent bankruptcy court order at the end of the personal bankruptcy case, preventing creditors from collections. This discharge order is not needed in all Chapter thirteen cases. You probably don’t need this discharge if you only have a mortgage that you need to catch up on. If you obtain a discharge, it may be years before you can file again due to waiting periods.
To obtain the discharge, you usually have to wait up to eight years before getting another discharge in the second case. This period can be as little as zero for Chapter 13 cases. It can be eight years between Chapter seven cases. The period runs from the date the first case is filed until the next filing date. So don’t ask for a discharge unless you need it.
Normal Plan Discharge
There are three-year plans and five-year plans for hardship discharges. If you make below the average income for your family size, you can have a 3-year program. Most judges, however, want plans to be for five years. If you have to catch up on a mortgage, you may need to file a 5-year Chapter thirteen to make the program affordable.
A Hardship discharge allows the Debtor to obtain the discharge early, often because of a loss in the Debtor’s disposable income. When the Debtor cannot complete the repayment plan with no fault of her own for financial difficulties, you can request the bankruptcy court to allow an early completion and discharge. The plan must pay back as much as Chapter 7 would have repaid. Since almost all debtors would not have repaid anything in Chapter seven, this is usually easily done. This discharge requires that the Debtor has made every effort to complete the plan, but completion has become impossible.
Timing Your Chapter 13 Plan And Discharge
The Debtor must often time his life and any Chapter thirteen plan. Some debtors return to school and work on career development while in Chapter 13. It keeps their plan payments to a minimum and maximizes what they would earn in a lifetime.
If you file a Chapter thirteen plan, the payments may be based on your earnings, assets, or the type of priority debts you have to repay. If your income is low, you have no non-exempt assets, and all the secured obligations are unsecured, you will have a low plan payment. The plan must be repaid to the best of your ability (income-driven). It must also repay secured and priority debts by catching up on priority debt and retained property (debt-driven). And it must pay back what a Chapter 7 would have when there are non-exempt assets (asset driven).
Plan payments are primarily based on the Debtor’s disposable income. If you work added hours at work and your income goes up without expenses increasing, your Chapter thirteen plan payments may go up. Some secured debts, such as taxes, must be timed to discharge.
The Chapter 13 discharge has been called a super discharge. There are at least 16 types of non-dischargeable debts which can survive bankruptcy and remain. Some unsecured debts are not discharged if the unsecured creditor objects to a discharge by filing an adversary proceeding. These include debts due to fraud or drunk driving and intentional injury. Other debts like taxes less than three years old, alimony and child support survive even if they are not objected to. Generally, unsecured debts are managed in the repayment plan, and if there is no objection, they will be discharged because the creditor agreed to the repayment plan by not objecting.
Qualifying for a Chapter 13 Hardship Discharges!
The perfect example the early undue hardship discharge is the unemployable widow with disabilities. Her husband was employed during the repayment plan and made the plan payments. Due to no fault of her own, he dies. But now, she can’t make plan payments and she deserves an early discharge because she has made her best efforts and still can’t complete the plan. They made payments to the creditors for 3-4 years and this didn’t happen at the start of the case. The creditors got more than Chapter 7 would have paid. Also, it is impossible to modify the repayment plan to make Chapter 13 work by just increasing the payments.
However, this requires that you do this in good faith. For example, if the widow murders her husband and then expects to get an early discharge, it doesn’t work. That doesn’t work because the death is not “due to circumstances beyond her control.”
Early Hardship Discharge
An early and hardship discharge allows a debtor a massive benefit over converting to a Chapter 7. To get a hardship discharge, a debtor must supply proof they qualify for a Chapter 13 hardship discharge under 11 USC § 1328(b). Injury or illness is often the reason for a hardship discharge. If you want a more extended version of what needs to go into the motion to approve a hardship discharge, look at the Bandilli case. In re Bandilli, 231 BR 836, (BAP 1st Circuit 1999).
The Bandilli Criteria
The courts look for one thing, whether you did your best to complete the repayment plan. Here’s a brief example. To grant the Chapter 13 discharge, they also consider events that come along, like a hurricane or other natural disasters. Interestingly, it is ok to see the hurricane and file Chapter 13, knowing you might have to ask later for the hardship discharge. However, it is not ok to cause a hurricane and then complain about it. To further explain, the following are the elements of the test:
- Chapter 13 debtor must present substantial evidence that they have the ability and intention to perform under the Chapter 13 plan at confirmation.
- Chapter 13 debtor materially performs under the plan from the date of confirmation until the date of the intervening event or events.
- Intervening events or events that were not reasonably foreseeable at the time of confirmation of the Chapter 13 plan.
- Intervening events or events that are expected to continue in the reasonably foreseeable future.
- The Chapter 13 debtor has control, direct or indirect, of the intervening event or events.
- The intervening event or events constitute a sufficient and proximate cause for the failure to make the required payments.
Contact Nick Thompson to Get Debt Relief in Chapter 13 Discharges!
We like to think of ourselves as the best debt relief agency, with the best debt solutions for any hardship discharge in Chapter 13. If you have questions about managing your plan correctly, call us at 502-625-0905. At our law firm, we develop the best attorney-client relationship.
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If you are considering filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office to start the conversation—Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.