“What happens if we can’t make our Chapter 13 payments?”
Many of our clients worry a great deal over whether or not they’re going to be able to make their Chapter 13 payments. They already know in many cases this could lead to bankruptcy dismissal, with its host of negative consequences.
Fortunately, you’re not completely without recourse. Some borrowers are eligible for a Chapter 13 hardship discharge.
What is a hardship discharge?
A hardship discharge is granted before you complete your payment plan.
According to the United States Bankruptcy Code, the hardship discharge exists when “circumstances arise that prevent the debtor from completing the plan.”
In short, the courts are aware that unforeseen circumstances arise and that life changes. There are provisions for this.
How do you qualify for a Chapter 13 hardship discharge?
A hardship discharge is available only if:
- Your inability to complete plan payments is due to circumstances beyond your control, which are not your own fault. This could include injury or illness. It does not include the results of choices you made.
- Creditors have already received at least as much money under the bankruptcy plan as they’d receive in a Chapter 7 liquidation case.
- Modification of the plan isn’t possible.
Many people do not even realize that a Chapter 13 modification is also an option. You’ll need to work closely with your bankruptcy attorney to determine which option is right for you.
Can you still keep your house or car after a hardship discharge?
Maybe. It depends on whether you’ve already caught up on these payments through your Chapter 13 plan. A Chapter 13 plan rolls missed mortgage and car payments into the plan so you can keep your car or house.
If you went into Chapter 13 while current on these payments then you may be able to keep them if you reaffirm the debt.
Before doing this you should consult with your bankruptcy attorney, because you will want to go over all of your options and the consequences of making any change.
What is the difference between a hardship discharge and a conversion to a Chapter 7 bankruptcy?
There are some debts that you can discharge with a Chapter 13 that you can’t discharge with a Chapter 7. These include debts for willful and malicious injury to property, debts for non dischargeable tax obligations, and debts arising from property settlements in a divorce or separation.
If you don’t have any of those debts a conversion to a Chapter 7 might be easier, depending on what your personal circumstances are. Either way, your attorney must file a motion and you must get the approval of the court.
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