If you’re enrolled in a Chapter 13 repayment plan and face severe financial hardship, you might question whether there’s a legal option to exit the plan early. A hardship discharge could offer that relief, but qualifying for one requires meeting strict legal standards.
Understanding a hardship discharge
A hardship discharge permits an early conclusion of your Chapter 13 case without completing all plan payments. It differs from a standard discharge, which occurs after all scheduled payments are made. To receive one, you must demonstrate that events beyond your control make continued payments impossible.
This discharge is granted only in exceptional cases. Courts generally approve it only when your financial situation cannot improve, and your repayment plan cannot be reasonably modified. A permanent job loss or serious medical condition might meet these standards.
Who can qualify for a hardship discharge?
You must meet three conditions to be eligible. First, your inability to complete the plan must result from circumstances outside your control. Second, your creditors must have received no less than they would in a Chapter 7 case. Third, your plan cannot be modified to reflect your current financial status.
If you satisfy these criteria, the court will examine your situation. Applicants often cite long-term disability, loss of employment, or debilitating illness. The court requires clear evidence that your hardship is both substantial and permanent.
What debts get discharged?
A hardship discharge doesn’t eliminate every type of debt. Obligations such as student loans, recent income taxes, and child support usually remain. However, the discharge can eliminate many unsecured debts like credit card balances and medical expenses, providing some financial relief.
Even if the court grants a hardship discharge, the bankruptcy still appears on your credit report. You might also need to resolve any remaining debts with your creditors. Still, this type of discharge can provide financial closure when completing the full plan is no longer feasible.
