Most people know that a Chapter 13 bankruptcy is designed to help you reorganize and pay back your debt. With this process, you won’t have to liquidate your assets, and you may not have to lose your home to foreclosure. The plan can take several years to complete, but by the end, you should be in a financially stable situation.
One part of Chapter 13 bankruptcy you may not have known about is called the Chapter 13 hardship discharge. Have you ever wondered what you happen if you had to miss payments due to getting injured or falling ill? That’s something the Chapter 13 hardship discharge can help with.
After you’ve decided on a Chapter 13 plan, you have to pay a monthly fee toward your debt. Consider a situation where you fall seriously ill and are hospitalized for months on end. It’s clearly difficult for you to make any payments, let alone work. In this situation, you could apply for a hardship discharge.
This discharge is only available to people who have fallen behind on the plan due to situations out of their own control. If you’ve paid enough at this point that the creditors would have been paid off in a Chapter 7 liquidation case, then the discharge may be granted to you. If you’re able to work, a modified plan can be offered. However, to receive a hardship discharge, you must be able to prove that you wouldn’t be able to pay even a modified plan due to your condition or situation. Unfortunately, debts such as secured loans may not be able to be discharged, but anything that could be discharged in a Chapter 7 case may be through this process as well.
Source: US Courts, “The Chapter 13 Hardship Discharge” accessed Mar. 05, 2015