There are two main types of bankruptcies that a person or a family can file – Chapter 7 or Chapter 13. Both types of cases have their own advantages and disadvantages, and the best way to find out which case is best for you is to contact our office and speak to an experienced bankruptcy attorney.
In general, Chapter 13 is better suited for families who can afford to pay off at least some of their debt. To do so, the family works with the bankruptcy court and the bankruptcy trustee to come up with a payment plan that will allow the family to make payments on its debts for a set period of time (usually between 3 and 5 years). At the conclusion of the plan, if there is any remaining debt the bankruptcy court discharges it.
Normally a Chapter 13 case only ends at the completion of the plan. However, there are certain situations when a debtor can terminate their plan early and receive something called a “hardship discharge.” Read on to learn more about how the Hardship Discharge.
The Hardship Discharge
Sometimes a debtor discovers that he/she cannot make the Chapter 13 plan payments. This may happen for any number of reasons such as job loss, illness, divorce, etc. If one of these extenuating circumstances happens to you, you may be able to file a motion with the bankruptcy court and request a hardship discharge. If the motion is granted, the bankruptcy judge will discharge your unsecured and nonpriority debts.
How Can I Qualify for a Hardship Discharge?
There are three requirements for the hardship discharge. First, the debtor must prove that it would not be possible for the bankruptcy court to modify the existing Chapter 13 repayment plan. To do so, the debtor (or the debtor’s attorney) would need to explain why the changed circumstances prevent a successful modification.
Second, the debtor must show that he/she can’t make the Chapter 13 payments due to circumstances that are beyond the debtor’s control. This is the most important part of the discharge process because a temporary financial setback (such as a leave of absence from work due to a medical need) will usually not result in a discharge.
Finally, the debtor must also prove that because of the payments he/she has already made in accordance with the plan, the debtor’s unsecured creditors have been repaid at least what they would have been repaid had the debtor filed a Chapter 7 bankruptcy instead of a Chapter 13.
Reminder: Not All Debts Will Be Discharged
If a debtor can meet these three requirements, the bankruptcy court will likely approved the motion for a Hardship Discharge. However, it is important to bear in mind that not all types of debts will be discharged. For instance, student loans, alimony and child support, and most local, state, and federal tax debts will not be affected by the Hardship Discharge and you will continue to be responsible for them after your case ends.
Additionally, debts that would normally be discharged can also survive the Hardship Discharge if a creditor files an objection with the court. This normally happens if the creditor can prove that the debt was incurred due to the debtor’s fraudulent or criminal acts (such as larceny or embezzlement).
As you can see, the Hardship Discharge can be a complicated process. To determine if this course of action is best suited for your case, contact our office today at 404-913-1529 to speak to an experienced attorney about your situation. We look forward to speaking with you!