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What Is a Bankruptcy Hardship Discharge?



In bankruptcy, a hardship discharge is the premature termination of a debtor's case and bankruptcy court's approval of the granting of a discharge ahead of normal timetables. The circumstances during which it is appropriate for a debtor to seek a hardship discharge in a Chapter 13 reorganization case are extremely limited. The main reason for the limited nature of the discharge granting is due to the fact that the debtor is requesting the benefit of receiving a discharge prior to the successful completion of all payments under his or her Chapter 13 plan. The debtor seeks the benefit of the bargain and the advantages of bankruptcy filing without having to complete all of the effort and work.

Limitations

In most cases, a hardship discharge is limited to situations involving debtors who fail to finish their Chapter 13 plan payments because of circumstances debtors cannot help, as a result of no fault on debtor's part. In the interest of fairness, the hardship discharge is also usually limited to situations in which a creditor receives as much repayment from a debtor through bankruptcy plan payments distributed by the trustee as that same creditor would have received had debtor filed a Chapter 7. Hardship discharges are a last resort in bankruptcy, used by debtors only when Chapter 13 plan modifications are not possible to solve the challenge and facilitate the continuation of normal, regular plan payments.

Examples

Examples of conditions or situations in which hardship discharges have been granted and may be found to be appropriate circumstances for the granting of such a limited discharge are after a fire destroying a family home, severe injury, severe illness, terminal conditions such as some cancers, or death of a spouse. The resulting situation must be dire and prevent the debtor's employment to the extent that debtor is unable to make plan payments even under a modified Chapter 13 plan with lower payment amounts established.

Situations potentially warranting a hardship discharge vary by jurisdiction and bankruptcy judge, as the determinations are case-specific. Bankruptcy judges set varying standards for ascertaining what constitutes a hardship discharge. Some are more harsh and stringent. The case law of a particular jurisdiction reveals the standard dire enough to qualify for hardship discharge relief, if such a remedy is even offered in that locality.

Other Options

Some times, a debtor who unsuccessfully petitions a bankruptcy court for a hardship discharge may still be able to improve his or her plight. For example, a debtor may be permitted to convert her Chapter 13 case to a Chapter 7 liquidation case, even though a bankruptcy judge may decide that a hardship discharge is unwarranted in the debtor's situation. Consultation with a local bankruptcy attorney will likely provide the assistance needed by a debtor in such situations.