This is the technical discussion of how to get Chapter 13 hardship discharges in Bankruptcy. However, if you are a client, you may also refer to Early Chapter 13 Bankruptcy Discharge. Often a Debtor is in the process of losing a job or becoming disabled. In fact, the Debtor may need the protection and benefits of Chapter 13. But, completing a Chapter 13 plan might be questionable because a disability, death, or divorce is probably or certain. The debtor may need to start their Chapter 13. Due to no fault of their own, a Debtor might have health problems and needs to include medical debts later. Thankfully, the Debtor can file a Chapter 13 and eventually obtain the early hardship discharge or convert to a Chapter 7.
This allows the debtor to file now and immediately get the protection they need but delay discharge until it is needed. Often this discharge allows you to get all of the medical or other debts in the filing for complete relief.
Obtaining the Chapter 13 Hardship Discharge in Bankruptcy
Medical debt that incurs after filing a Chapter 13 is simply added to the petition and you may discharge those medical debts later. Also, Chapter 13 debtors can ask the court for an early hardship discharge under 11 USC §1328(B) when the following is true:
- The debtor’s failure to complete plan payments is due to circumstances beyond the debtor’s control through no fault of the debtor.
- Creditors have received at least as much as they would have received in a Chapter 7 liquidation case.
- Modification of the plan is not possible.
Qualifying for a Chapter 13 Hardship Discharge
The perfect example of this is the unemployable, disabled widow. During the plan, she had an employed husband that made the plan payments. Due to no fault of her own, he died. But, now she can’t make plan payments, and she deserves an early discharge. They made payments to the creditors for 3-4 years in good faith. In fact, the creditors got more than Chapter 7 would have paid. Also, it is impossible to modify the plan to make Chapter 13 work.
However, this requires that you do this in good faith. As an example, the widow murders her husband and then expects to get a discharge. That doesn’t work because the death is not “due to circumstances beyond her control.”
Early and Hardship discharges allow a debtor a huge 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 U.S.C. § 1328(b). Injury or illness is often the reason for a hardship discharge. If you want a longer 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 Six Bandilli Criteria
One of the things the courts look for is if you make your best efforts to complete the plan. Here’s a brief example. To defeat the Chapter 13 plan, they also consider events that come along like a hurricane or other natural disasters. Interestingly, it is ok if you see the hurricane coming 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:
- Whether Chapter 13 debtor presents substantial evidence that he or she has the ability and intention to perform under the Chapter 13 plan at the time of confirmation.
- If Chapter 13 debtor materially performs under the plan from the date of confirmation until the date of the intervening event or events.
- If the intervening event or events are reasonably foreseeable at the time of confirmation of the Chapter 13 plan.
- Whether the intervening event or events are expected to continue in the reasonably foreseeable future.
- If the Chapter 13 debtor has control, direct or indirect, of the intervening event or events.
- Whether the intervening event or events constitute a sufficient and proximate cause for the failure to make the required payments.
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If you are thinking about filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.