Are you in a chapter 13 bankruptcy case? Have you experience unforeseen expenses, job loss, illness, injury or other difficulties. What can you do if you can’t make the plan payments?
The Bankruptcy Code, 1328(b)has one potential solution that you may not be aware of. The solution is something known as a “Hardship Discharge.” If granted, a hardship discharge allows you to stop making plan payments midway through the plan and receive a Chapter 13 discharge.
To determine if you are eligible for a hardship discharge you have to meet the following three factors.
First, the reason you cannot make your payments must be due to reasons for “which the debtor should not justly be held accountable.” Examples of these reasons include job loss, illness or injury, and divorce.
Second, your general unsecured creditors cannot receive less than they would have received in a Chapter 7 liquidation. This scenario would arise in situation where you have unexempt equity in your home or another asset. In the latter, if you converted to a chapter 7 then the trustee could sell your home and use the unexempt equity to pay off your debts. As a result, you would not be entitled to a hardship discharge.
Third, modification of your chapter 13 plan is not practical. Can you extend the length of your plan? Can you lower monthly payments temporarily and still be able to perform according to the plan? If you can do either one of these then you may be ineligible for a hardship discharge. Now, for most of you your plan is already maxed out in five years and, most likely, the plan payment is as low as it can get while paying of your debts. As a result, modification becomes nearly impossible.
If you are ineligible for a Hardship Discharge, you should consider converting your case to a Chapter 7. Alternatively, you may be able to dismiss your chapter 13 and file a new case if necessary.
This is a brief overview of a complex legal topic and it is important that you consult knowledgeable bankruptcy counsel before taking action.
Joseph K. Githuku, Esq.
Baltimore Bankruptcy Lawyer
Maryland Bankruptcy Lawyer
Baltimore Chapter 7 Lawyer
Baltimore chapter 13 Lawyer
Maryland chapter 7 Lawyer
Maryland Chapter 13 Lawyer
Disclaimer: This article is not meant nor can it be construed as legal advice. No attorney-client relationship is created as a result of this article.