Chapter 13 Bankruptcy Hardship Discharge Rules

Use these chapter 13 bankruptcy hardship discharge rules when determining your situation.

Chapter 13 bankruptcy hardship discharge may be granted by the court, even though you have failed to complete plan payments if, the circumstances under which you request this is limited to circumstances beyond your control and through no fault of your own!

The discharge will only be granted if the creditors have received at least as much as they would have received in a chapter 7 bankruptcy liquidation case and when modification of the plan is not possible.

Hardship discharges can be based on injury or illness that precludes employment sufficient to fund even a modified plan. The hardship discharge is more limited than a regular chapter 13 discharge and does not apply to any debts that are non-dischargeable in a chapter 7 bankruptcy case

After filing many people experience additional financial setbacks and want to know what happens if they stop paying their monthly payment to the Trustee. If the problem is temporary, usually not more than three months, then you should contact the Trustee and ask to work out an alternate payment plan.

If you’re acting in good faith, the Trustee will normally work with you. However, if you cannot work out a plan, or simply fail to make the payments then, the Trustee will have your case either converted to a Chapter 7 or completely dismissed in which case you’ll lose all bankruptcy protection.

See our in-depth information on bankruptcy discharge and chapters 7, 11, and 12: Chapter 13 bankruptcy hardship discharge

The purpose of chapter 13 is to enable financially distressed individuals, under court supervision and protection, propose and carry out a repayment plan to creditors over an extended period of time.

Under chapter 13, you are permitted to repay creditors, in full or in part, in installments over a three-year period, during which time creditors are prohibited from starting or continuing collection efforts. You may request, “for cause” the court to approve a plan for more than three but no more than five years.

Chapter 13 relief is available to any individual, even if self-employed or operating an unincorporated business, as long as the individual’s unsecured debts are less than $250,000 and secured debts are less than $750,000.