Chapter 13 is a long term commitment that generally lasts between 3 to 5 years. Many life changes can occur in that span of time. While we hope for an improvement of our circumstances, the truth is some people experience hardship, such as a drop in disposable income.
When a Chapter 13 debtor with a confirmed chapter 13 plan experiences a hardship, such as a drop in disposable income, they may have a couple of bankruptcy options. (1) They may be eligible for a Chapter 7 discharge by way of a conversion of their Chapter 13 bankruptcy to a Chapter 7 bankruptcy, or (2) They may be eligible for a Chapter 13 hardship discharge.
Converting a case to one under Chapter 7 is advantageous in the event a Chapter 13 debtor may have incurred debt after the initiation of their Chapter 13 bankruptcy. However, one cannot convert their bankruptcy from Chapter 13 to Chapter 7 if they previously filed for Chapter 7 within 8 years of the initiation of the present Chapter 13.
In situations where Chapter 13 debtors have not incurred debt after the initiation of their Chapter 13, it is probably more advantageous to request the Court for entry of a hardship discharge. Obtaining a hardship discharge allows debtors to become eligible for a subsequent Chapter 7, 11, or 13 discharge two years sooner than they would otherwise be allowed, if they converted their case to Chapter 7 and received a discharge.
Generally, a hardship discharge in Chapter 13 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.
Even if the court grants a hardship discharge, it’s important to be mindful of the fact that the not all obligations will be extinguished, including but not limited to:
- Priority debts
- Secured debts
- Arrears on secured debts
- Student loans
- Domestic support obligations
- Fines or restitution imposed in a criminal-type proceeding
Contact the experienced bankruptcy attorneys in Los Angeles at Vokshori Law Group at 855.855.2608 to further explore your potential option for a hardship discharge. Nothing in this piece should be treated as legal advice. An attorney-client relationship does not exist with the attorneys at Vokshori Law Group until after a legal services agreement is executed. For further information please visit www.Voklaw.com.