The Bankruptcy Hardship Discharge
A Chapter 7 bankruptcy discharges most of your unsecured debt and nonexempt assets may be seized to pay off your debts. But to qualify for a Chapter 7 bankruptcy you need to pass a means test. People who do not pass the means test are typically, although not always, eligible to file a Chapter 13 bankruptcy instead. A Chapter 13 bankruptcy establishes a repayment plan. This payment plan is meant to be affordable to the filer and to pay debts according to the bankruptcy trustee’s prioritization schedule.
The problem arises when people cannot afford the Chapter 13 payment plan established for them by their bankruptcy trustee. The trustee will often try to arrange another plan that is easier to manage but in some cases there has been a significant financial change and no payment plan is going to work. In these situations there are typically two options, the bankruptcy filer can ask to have their Chapter 13 repayment plan canceled and file for a Chapter 7 instead or the filer can seek to receive a hardship discharge.
A hardship discharge typically isn’t available for someone who has filed their Chapter 13 bankruptcy recently, it’s for people who have made some payments toward their debt, typically that which they would have paid if they had filed a Chapter 7 or more. A hardship discharge in this situation is sometimes granted by the bankruptcy court. The thought behind it is that if the person were to transfer to a Chapter 7 from their Chapter 13 they’d be unfairly subject to seizure of their assets, which is more than they would have been required to pay under either chapter.
This is a very difficult area to wade through so having an experienced bankruptcy attorney can aid you in the process and make your chances of having a hardship discharge approved much greater.