If or when you find yourself in financial difficulty, with creditors knocking on your door, you\’ll have two options for dealing with the situation:
1. File for a Chapter 7 discharge of your debt
2. File for a Chapter 13 debt repayment plan
Which of these you choose will depend entirely on your personal circumstances, especially your income capabilities, and how quickly you think you’ll be able to get back on your feet?
In the case of a Chapter 13 filing your repayment plan will last anywhere from 3 – 5 years, after which you’ll have a financial clean slate.
But what if your personal or financial circumstances change during the term of your repayment plan and you find yourself unable to maintain your debt repayment commitments?
After all, even with the best of intentions, you can’t predict your future. If you could, you’d never have had to file for Chapter 13 assistance in the first place.
Fortunately, there is a provision within Chapter 13 bankruptcy law that deals with precisely the above situation, and it’s known as a “hardship discharge”.
Basically, if you experience a severe and unexpected change in your circumstances, you can ask the court to release you from your repayment plan because you simply cannot afford to make the payments required of you.
But you cannot ask for this type of financial leniency if you’ve voluntarily quit your job, are currently unable to work, or find yourself unemployed for a period of several weeks or months. Most types of disability are also not accepted as valid reasons for requesting the cessation of your Chapter 13 repayments.
The basic rule is that the hardship you’re currently enduring must be of a life changing nature and is not something that will or can be fixed in the foreseeable future. An accident that prevents you from working ever again is an example of a permanent and irrevocable change of circumstances.
It’s also worth mentioning here that courts are often extremely reluctant to grant a hardship discharge because it leaves the entire bankruptcy process open to abuse and manipulation. That’s why there’s so much proof required for yours to even be considered.
Even in situations where you are granted a hardship discharge of your Chapter 13 repayment plan, you are still expected to repay your creditors to the same level as if you’d originally filed for a Chapter 7 bankruptcy. This is usually a fraction of the original amount owed, but it will have to be paid.
So this type of discharge will still require at least some financial commitment on your part – it is not a complete discharge of your outstanding debts, or some kind of legal loophole.
And finally, you can only discharge unsecured debts as part of the hardship discharge process. Other secured debts, such as student loans, alimony payments, most local, federal and state taxes, child support, fines, etc., are not covered by this bankruptcy provision. So you will be required to make ongoing child support payments, for example.
The best place to start with a debt discharge is by speaking to a qualified and experienced bankruptcy attorney. They\’re best suited to guide you on what you are and are not entitled to within bankruptcy law.