As I have discussed previously at the National Bankruptcy Forum, a Chapter 13 Bankruptcy is also called a wage earner’s Plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the Debtor ’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for Cause .” If the debtor’s current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years. See 11 U.S.C. §1322(d). During this time the law forbids creditors from starting or continuing collection efforts.

After confirmation of a plan, circumstances may arise that prevent the debtor from completing the plan. In such situations, the debtor may ask the court to grant a "hardship discharge." 11 U.S.C. § 1328(b). Generally, such a discharge is available only if: (1) the debtor's failure to complete plan payments is due to circumstances beyond the debtor's control and through no fault of the debtor; (2) creditors have received at least as much as they would have received in a Chapter 7 liquidation case; and (3) modification of the plan is not possible. Injury or illness that precludes employment sufficient to fund even a modified plan may serve as the basis for a hardship discharge. The hardship discharge is more limited than the normal Chapter 13 discharge (discussed here) and does not apply to any debts that are nondischargeable in a Chapter 7 case.  See 11 U.S.C. § 523, entitled "Exceptions to Discharge."

If you have a pending Chapter 13 and believe that you may be entitled to a hardship discharge, talk to your bankruptcy attorney.

-Drew Broaddus