What is a Chapter 13 Hardship Discharge?

A Chapter 13 bankruptcy is designed to create a three or five year program for repayment of debts for specific creditors in accordance with rules agreed upon by all parties and overseen by a court appointed trustee. If a debtor is unable to make good on his or her responsibilities under the Chapter13 reorganization provisions, he or she may file for what's known as a Hardship Discharge in an attempt to get out from under the thumb of creditors.

State courts and even individual judges may disagree on what precisely constitutes hardship requisite to qualify for a "hardship discharge." However, in general, if the debtor has suffered a massive personal injury or has been unable to work for reasons well beyond his or her capacity to control, a hardship discharge may be granted.

Of course, for a debtor to qualify for this discharge, the Chapter 13 plan must not be able to be modified to a Chapter 7 bankruptcy program. Your attorney can fill you in on contextualized definitions of hardship relating to your case. Remember that even with a hardship discharge, you may still have to manage long-term credit obligations, such as student loans, palimony, and taxes to the federal, state, and local government. Although it is possible to discharge certain income taxes, it is almost never possible to discharge other taxes, such as sales taxes and monies owed to the federal government for tax fraud.

It's not always financially wise to exercise your option for a hardship discharge motion. In some cases, it makes more sense to work with individual creditors to waive fees, restructure your plans, and retool your budget based on your new, reduced income generation capacity. In other words, before rushing back to the courts -- which can be expensive in and of itself -- look for other means to ameliorate your financial hardships.

Perhaps you can borrow from a family member or create longer term repayment plans for your credit obligations. Perhaps you can lean on social services, such as Medicare, to take care of pressing medical bills. You might also look into converting your Chapter 13 filing to a Chapter 7 motion at some point in the future to simplify your proceedings.