Chapter 13 Bankruptcy is a Wage Earner’s Bankruptcy

As I have discussed previously at the National Bankruptcy Forum, a Chapter 13 Bankruptcy is also called a wage earner’s Plan. It enables people with jobs to develop a plan to repay all or part of their debts when they’re having trouble with their bills. Under chapter 13 bankruptcy, debtors propose a repayment plan to make installment payments to creditors over three to five years.

Failure to Make Plan Payments May Result in Dismissal

Under normal circumstances, failure to make your plan payments during the 3-5 year period will result in your case being dismissed without a discharge. However, problems may arise that prevent the debtor from completing the plan. In such situations, the debtor may ask the court to grant a “hardship discharge” 11 U.S.C. § 1328(b).

A hardship discharge allows debts to be wiped clean even though the repayment plan has not been completed and is available only under limited circumstances. Generally, such a discharge is allowed 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. Injury or illness that precludes employment sufficient to fund even a modified plan may serve as the basis for a hardship discharge. The hardship discharge is more limited than the normal Chapter 13 discharge (discussed here) and does not apply to any debts that are nondischargeable in a Chapter 7 case.  See 11 U.S.C. § 523, entitled “Exceptions to Discharge.”

If you have a pending Chapter 13 and believe that you may be entitled to a hardship discharge, talk to your bankruptcy attorney.

Drew Broaddus