Early Chapter 13 Bankruptcy Discharge

If a Debtor has made the majority of his plan payments in the Chapter 13 plan but can not continue to make payments due to no fault of his own he may ask for an early or hardship discharge.  The Debtor cannot cause his own problems and then complain about how he cannot complete the plan.  And the debtor must have done his best efforts to complete the plan.

If the debtor has become disabled he will often be allowed an early discharge.  However, if he simply  quit his job he is not allowed to complain about it.  If he bought a car without court approval and then can’t afford the Chapter 13 he wont get the early discharge.

The liquidation test in early discharge cases. 

In order to get the discharge in a Chapter 13 every case must past a liquidation test.   What this means is the Chapter 13 must repay as much as if it had been filed as a Chapter 7.   If the Debtor would have lost a diamond ring worth 5,000 in a Chapter 7 because he did not have enough exemptions then his Chapter 13 must repay at least 5000 dollars because the case would have repaid 5,000 as a Chapter 7.   This liquidation test is a calculation that has to be in the motion as an exhibit.

If the Debtor simply needs a short period of time without payments or needs his payments lowered the debtor should instead modify the plan or ask for a temporary order allowing him or her to suspend payments for a couple of months.  A common example is a short term maternity leave.

Chapter 13 Plan Modifications

A debtors payments can be increased or decreased.   All of the debtor’s disposable income is required to be paid in a Chapter 13 plan.  Hiding income or the failure to turn over a tax refund may prevent a discharge.  But if the debtors income is lowered the plan payments can be lowered.  A Chapter 13 can also be converted to a Chapter 7.  The plan can also be increased if the debtor obtains a higher paying job.  The plan is very flexible and can include increasing or decreasing payments over time in a step plan.

A debtor normally can’t pay off the plan early because rules require the debtor to commit all of his disposable income.   However no debtor is required to pay more than 100%.  If you earn less than the average income you may have a 36 month plan.   If you earn over the average wage you must have a 60 month plan.  It is far easier to file a new budget and ask the court to reduce or suspend plan payments rather than obtain an early discharge.  And a Debtor can always increase the plan from 36 months to 60 months.