If you are considering filing Chapter 13 bankruptcy or have filed and are having trouble making your Chapter 13 plan payments, Philadelphia bankruptcy lawyer David M. Offen explains what a Chapter 13 hardship discharge is, when you can get a hardship discharge, and what debts a hardship discharge does and does not include.
If you are wondering whether you can afford to file Chapter 13 bankruptcy or what happens if you suddenly cannot afford your plan payments, call the Law Offices of David M. Offen at (215) 625-9600. We will discuss your options during your free, no-obligation debt consultation. Let us help you file Chapter 13 bankruptcy successfully and get a fresh financial start.
Hardship Discharge Definition
The bankruptcy court will grant you a Chapter 13 “hardship discharge” when you have not made all of your plan payments yet cannot continue to pay your plan payments due to circumstances beyond your control.
A temporary loss or reduction of income will not suffice. In order to receive a hardship discharge, your income stream must be unavoidably reduced due to something calamitous, such as the loss of ability to work due to an accident or medical problem.
Requirements for a Hardship Discharge
In order to receive a hardship discharge you must have paid your unsecured creditors at least as much as they would have gotten had you filed Chapter 7, through your Chapter 13 plan. You calculate this amount by assessing the value of your nonexempt assets and adding it up, then distributing each creditor their pro rata share.
What are “nonexempt assets?”
Nonexempt assets are the assets in excess of those that would have been exempted from your bankruptcy estate had you filed Chapter 7, having met the income limit for filing Chapter 7 bankruptcy. In a Chapter 7, nonexempt assets are sold for the benefit of your unsecured creditors. In Chapter 13, your unsecured creditors are paid at least as much as they would have gotten had you filed Chapter 7, and more if you have more disposable income than that.
When You Might Consider a Hardship Discharge
You and your attorney should weigh your options carefully if you find that you can no longer afford to pay your Chapter 13 plan payments. If you still have an income stream, you might consider modifying your Chapter 13 plan to reflect a reduction in income, and get a reduced monthly plan payment.
If your circumstances are so dire that even a reduced plan payment is not feasible for you, that is the time to consider requesting a hardship discharge.
A Hardship Discharge Won’t Eliminate All Debt
A hardship discharge ends your Chapter 13 plan, so your opportunity to catch up with debt such as missed mortgage or car payments, priority tax debts or secured tax debts, or past-due child or spousal support also ends. Once your case closes, those creditors can take collection actions against you.
A hardship discharge will not include these types of debts:
- Secured debts, if you retain the collateral
- Student loans
- Government fines and fees
- Ineligible past-due income taxes
- Other non-dischargeable and priority debts
Talk with a Bankruptcy Lawyer
If you don’t know whether you can afford to file Chapter 13, or if you filed Chapter 13 and are struggling to make plan payments, call us. We have over 20 years of experience and have filed over 12,000 Bankruptcy cases helping people like you solve their debt problems. Filing Chapter 13 bankruptcy, modifying your Chapter 13 plan, or getting a hardship discharge may be your answer. Call us today to find out.