What is a Hardship Discharge in Chapter 13 Bankruptcy?

Chapter 13 Hardship Discharge in Monroe, Louisiana

Are you having trouble with your Chapter 13 repayment plan? If you are having difficulty keeping up with your repayment plan, you may be qualified for a hardship discharge in Chapter 13 bankruptcy. 

If you just made the decision to file Chapter 13 bankruptcy, our Monroe bankruptcy attorney can help you in coming up with a repayment plan that works for you and is also acceptable to your creditors and the bankruptcy court. Even with meticulous preparation, your repayment plan may have become unsustainable owing to unavoidable changes in your life.

Our lawyers at E. Orum Young Law Contact E. Orum Young Law have been helping people with debt problems in and around Monroe, Louisiana.  Debt relief options including Chapter 7 bankruptcy, Chapter 13 bankruptcy, business bankruptcy, debt settlement, and more are available through our law firm. We understand your predicament. 

Let us help you find the best solution to your debt problems during a free consultation. To arrange a no-cost consultation, please contact our Monroe bankruptcy attorney by phone or online form right away. 

Chapter 13 Bankruptcy: What is a Hardship Discharge in Chapter 13 Bankruptcy?

To be discharged (freed from paying your debts) under Chapter 13 bankruptcy, you must have completed your Chapter 13 repayment plan successfully. A Chapter 13 plan, however, usually lasts between 3 to 5 years, so it is not unusual for a lot to change in your financial situation during that time. If you are unable to continue making payments, you may petition the bankruptcy court to grant you a hardship discharge (Bankruptcy Code 11 USC § 1328(b)).

The definition of a hardship discharge is this: it is a court-issued release from your debt before you have completed all of your payments required by your Chapter 13 repayment plan. A hardship discharge in Chapter 13 bankruptcy can be obtained by filing a motion in bankruptcy court and fulfilling all of the 3 conditions below.

• You didn’t pay your bills on time due to circumstances you couldn’t control.
• Your unsecured creditors have already gotten the same money they might have in a Chapter 7 bankruptcy.
• There is no possibility for your repayment plan to be modified.

What is the Success Rate of Chapter 13 Bankruptcy?

A study by the American Bankruptcy Institute (ABI) found that consumers should know that there is less than a 50/50 chance that filing for Chapter 13 bankruptcy will work.

The ABI study for 2019 found that only 114,624 of the 283,313 cases filed under Chapter 13 were granted (discharged), while 168,689 were thrown out (i.e. denied). That’s only a 40.4% chance of success. People who tried to represent themselves, which is called “Pro Se filing,” only won 1.4% of the time.

What are Circumstances That Could Validate Hardship Discharge in Chapter 13 Bankruptcy?

To get hardship discharge, you should not be to blame for the deterioration of your circumstances. Also, you usually have to provide a serious as well as a permanent condition, like a life-altering illness that happened after filing bankruptcy, which keeps you from carrying out your repayment plan. A temporary job loss or having your income amount go down is not enough reason. In that case, you may want to convert your Chapter 13 bankruptcy case to a Chapter 7 bankruptcy.

Payments to Unsecured Creditors: How Much Have You Paid?

Before the bankruptcy court can grant you a hardship discharge, proof has to be shown that your Chapter 13 plan already has paid all of your unsecured creditors (these are debts that do not have collateral) the same amount of money that they might have gotten in a Chapter 7 bankruptcy.

How much your unsecured creditors might have gotten in a Chapter 7 bankruptcy will depend on how much non-exempt property you own. Chapter 7 is when a property that is not exempt is sold. On the other hand, you pay your creditors for a non-exempt property as a part of your Chapter 13 repayment plan, which is the reason why you get to keep it.

If you are paying for many non-exempt properties in your Chapter 13 repayment plan and your plan was just recently granted, you may have possibly not paid enough to your unsecured creditors to meet the hardship discharge criteria.

When Is It Not Feasible to Modify a Chapter 13 Plan?

If your situation changes after you file Chapter 13 bankruptcy, the law lets you change your payment plan to fit your new situation. For instance, if your monthly income decreases while under bankruptcy, you may be able to change your plan in order to lower the amount you have to pay. A judge can lower the amount you have to pay on unsecured, non-priority debts like credit card bills, hospital bills, as well as personal loans.

At the end of the day, you have to show that changing your plan isn’t possible or realistic, that your situation is so bad that a modification would still not enable you to finish your plan.

What Type of Debts Will Be Wiped Out By a Hardship Discharge?

A hardship discharge in a Chapter 13 bankruptcy is similar to a Chapter 7 bankruptcy discharge. In Chapter 7 bankruptcy, only dischargeable, non-priority, unsecured debt is wiped out. This means that some debts will still remain. The following kinds of debts won’t go away with a Chapter 13 hardship discharge:

• a non-dischargeable debt in Chapter 7 bankruptcy
• student loan, and
• priority debt

Furthermore, many people apply for Chapter 13 to help them keep their homes, and if you obtain a Chapter 13 hardship, you will forfeit that advantage. Once you stop making payments on your Chapter 13 repayment plan, you won’t be able to catch up on failed mortgage or car loan payments or other past-due secured debt, and you could lose your car or house. You might want to talk to the lender about your options.

You might find it useful to understand the distinctions between Chapter 7 and Chapter 13 bankruptcy considering how similar a Chapter 13 discharge is to a Chapter 7 discharge. Talk to a knowledgeable Monroe bankruptcy lawyer concerning the difference.

Debts That a Hardship Discharge Will Not Eliminate if the Creditor Successfully Objects

Some debts will be erased by a hardship discharge unless the creditor files and wins a lawsuit (called “adversary proceeding”) against the debt. Among these debts are:

• debts acquired by fraudulent means, such as using a credit card when you knew you couldn’t afford the payment
• debts from harm you did on purpose and with malice to another person or their property, and
• debts caused by theft, embezzlement, or a breach of trust (fiduciary duty).

If you have one of these kinds of debt, the best thing to do is nothing and hope that the creditor does too. If the creditor pursues the lawsuit, you will have to respond if you would like the debt to remain dischargeable.

If I Can’t Afford the Payments Any Longer, Can I Just Stop Making Them?

If you can’t pay your payments on the approved plan, don’t just stop paying. There will be serious penalties. You need to get a hardship discharge approval. Even if the bankruptcy court agrees to the discharge, not all of your debts will be erased. Debts that may not be discharged include criminal fines, student loans, secured debts, arrears on secured debts, and many more.

Contact Our Monroe Louisiana Bankruptcy Attorney Now!

Chapter 13 repayment plans can be complicated, and if they become too burdensome for you, we at the Law Office of E. Orum Young can give you legal advice and help on getting a Chapter 13 hardship discharge or seeking modifications. 

When you file for bankruptcy with E. Orum Young Law Offices, we make sure that creditors stop harassing you right away. We are proud members of the National Association of Consumer Bankruptcy Attorneys and have been helping people in Northeast Louisiana for more than 35 years. We have handled more bankruptcy cases than any other law firm in our area, with more than 20,000 filings to date. Call us immediately to get a free evaluation of your case and find a way to get out of debt.