Hardship Discharge Chapter 13: Best Way To Overcome Payment Issues
Suppose you’ve filed for chapter 13 and are on the way to making monthly payments to the creditors. But suddenly, something happens to your financial status, and now you can’t make the payments.
Here, converting to chapter 7 is not a good option because you may lose your equity, which can be counted as an asset. However, hardship discharge chapter 13 can be the best alternative.
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Requirements Of Hardship Discharge Chapter 13
The most crucial point for qualifying for a hardship discharge is that you must fulfill all its requirements. Satisfying one of them wouldn’t help you. Here, three essential requirements are necessary to qualify for a hardship discharge.
1. The situation Is Beyond Your Control
You should not create that financial situation of your own. For instance, you’re quitting a job and putting yourself in the condition of not making payment. This way could not help you with a hardship discharge.
But If your situations are beyond your control and last over a few months. Here, you are on the way to qualifying for a hardship discharge in Chapter 13. The most common example of this case can be extreme medical conditions where debtors cannot produce income.
2. No Option For Payment Modification
The requirement for a hardship discharge is you can’t change your payment plan. For example, if you are thinking of payment below the standard amount. It wouldn’t work here; there is no option for a lower monthly payment plan.
3. Creditor Received Enough Payment
The creditors have received the amount of payment in chapter 13 that they would have received in the case for chapter 7. For instance, you have paid $12000 to your creditors, and it’s the amount you need to file for chapter 7.
But you didn’t file for chapter 7 because it would take off all of your left equity. That’s why you consider the hardship discharge option. It’s an essential requirement to qualify for a hardship discharge. Also, it depends on several factors, like:
- Assets you have
- Types of debt
- The payment you already made in the plan
Further, you can speak to your attorney if you face any complications.
What Are The Debts That Hardship Discharge Chapter 13 Won’t Eliminate?
Luckily, if you qualify for a hardship discharge, only unsecured debts that are not the priority will be eliminated. Further, hardship discharge will not eliminate any debt that you won’t be able to remove through chapter 7, like:
- Domestic obligations and recent taxes.
- Student loans.
- Secured debts, if you kept the property like a car or house.
- Debts for special assistance; you owe to a cooperative association.
- Obligations that didn’t discharge in previous bankruptcy for specific reasons.
- The debt for pension, profit-sharing, or other established plans under different sections of the Internal Revenue Code.
Suppose the debtor qualifies under hardship discharge requirements. Chapter 13 discharges the debtor with no additional payment plan. It happens if the debtor completes the payment plan under the original terms.
Figure 2. Debt removal through chapter 13
If you need a discharge from chapter 13 and don’t want to convert to bankruptcy chapter 7, you cannot make any payment to the creditors. In that case, seek consultation from an expert attorney about hardship discharge in chapter 13.
However, this option has quite limited applicability. But considering an experienced attorney would help you qualify for a hardship discharge as it may serve you certain advantages.