What Happens if You Can’t Meet the Terms of a Chapter 13 Repayment Plan?

What do you do if you need help meeting the terms of your Chapter 13 repayment plan? 

What happens if you lose your job, have a medical emergency, or experience another dramatic life change during the course of three to five years? 

After all, Chapter 13 payments don’t have a grace period, and failing to make even a single payment could lead to case dismissal.

Fortunately, the United States bankruptcy code is written to account for many diverse situations, including changes in circumstances. A hardship discharge may help you end your bankruptcy early without worrying about case dismissal. 

Eligibility for Hardship Discharge 

A hardship discharge is a court order that grants you a discharge before you’ve completed your plan. You must prove you have met the following three conditions:

  1. You cannot meet your payments because of circumstances beyond your control. For example, you cannot voluntarily quit your job and then ask for a hardship discharge. 
  2. Your unsecured creditors have already received at least as much money as they would have received under a Chapter 7 bankruptcy.
  3. It is not feasible to simply modify your Chapter 13 plan.

Alternatives to Hardship Discharges

You may not need a hardship discharge. It is also possible to request a temporary deferral of payments long enough to get back on your feet. Chapter 13 modifications, which lower your payments for the rest of the payment period, may also be possible in your specific case. 

Your bankruptcy attorney can help you determine whether proposing a modification or a hardship discharge is more appropriate. In general, it’s more appropriate to file for a modification if it looks like your circumstances could change. A modification is more likely to be granted than a discharge. 

Temporary Changes vs. Permanent Ones 

To receive a hardship discharge, you must be able to prove that your circumstances are unlikely to improve. 

For example, a temporary job loss may not qualify for a hardship discharge because you’ll likely get a new job.

 A terminal illness probably would qualify because you’re unlikely to get better.  It’s also unlikely you could work while receiving care. 

If you could get back on your feet again, courts will generally require you to seek other avenues and solutions first. 

Consequences of a Hardship Discharge 

Remember that a hardship discharge could leave you vulnerable to foreclosure or repossession. 

You should have a plan in place for meeting your housing needs, in particular, before requesting a discharge. 

A hardship discharge won’t eliminate priority debt that would have been included in your Chapter 13 plan. You’ll still owe those debts after the discharge. 

In addition, creditors can object to certain debts being included in the hardship discharge. If they’re successful, you’ll still have to pay those debts. 

Get Help Today 

If you plan to file for Chapter 13 bankruptcy, you’ll need an experienced attorney with you at every step of the process. Haysom Law can help ensure your bankruptcy petition is successful. 

Contact us to get started today.

See also: 

What Happens After a Chapter 13 Case is Paid Off? 

How Do I Get a Chapter 13 Modification in New York? 

What Will Your New York Chapter 13 Payment Look Like? 



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