Once debtor’s Chapter 13 Bankruptcy plan is confirmed, the debtor has an obligation to make monthly payments. Unfortunately, sometimes circumstances change and the debtor cannot continue to make payments. When the debtor can’t make the payments on a confirmed Chapter 13 plan, the choices available to the debtor are limited. While there are a number of options, the best option for the debtor is usually a hardship discharge under §1328(b).
A bankruptcy discharge under §1328(b) eliminates all the debt that would have been dischargeable had the case been filed initially as a Chapter 7 Bankruptcy. While certain types of claims would still survive a hardship discharge, but the remainder of the debt is discharged, as if the plan has been completed over its term.
In order to obtain a hardship discharge, the debtor has to satisfy the best interests of creditors test, i.e., creditors must have received at least as much as they would have received had the case been filed as a Chapter 7 Bankruptcy. Additionally, the debtor’s reasons for his inability to complete the plan must be events outside of the debtor’s control. Usual events include death, illness, job loss, and, occasionally, divorce.
I prefer hardship discharge for my clients, as opposed to converting a Chapter 13 Bankruptcy to Chapter 7 Bankruptcy? When the discharge is entered under Chapter 13, the debtor is eligible to file another Chapter 13 immediately. If the case is converted to a Chapter 7 Bankruptcy, the debtor cannot file under either chapter of the Bankruptcy code for a period of time. An additional advantage of a hardship discharge is that there is no need for a new 341 meeting or amended schedules, as there would be if the case were converted to Chapter 7.
Since Chapter 13 Bankruptcy often includes debt that is not dischargeable in Chapter 7 Bankruptcy, while the hardship discharge won’t discharge priority taxes, by obtaining a hardship discharge, the debtor is eligible to file another Chapter 13 when he is again healthy or employed. Further, the debtor can receive the automatic stay in a subsequent case to finish paying the debts that often caused the Chapter 13 Bankruptcy.
In subsequent posts, I intend to discuss additional options available to the debtor.
If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.