If you find yourself struggling to pay your debts, filing for Chapter 13 bankruptcy is a potential solution. This allows you to restructure your debts and create a manageable repayment plan. As long as you follow the repayment schedule, you should successfully emerge from bankruptcy.
However, unexpected events can transpire during the course of the repayment plan. In such cases, a hardship discharge may come into play as a lifeline.
How a hardship discharge works
The hardship discharge is a legal provision within Chapter 13 bankruptcy that serves as a last resort for individuals who encounter unforeseen financial struggles during their repayment plan. If you qualify, a judge will discharge your remaining debt obligations so you do not have to pay them off, allowing you to exit bankruptcy.
Qualifications for a hardship discharge
To be eligible for a hardship discharge, debtors must meet specific criteria. You must show that you have experienced circumstances beyond your control that make it impossible to continue making payments under the original repayment plan. Additionally, you have made your best effort to repay creditors and modifying the existing plan to accommodate your altered situation is not feasible.
Examples of changes in circumstances
While each case is unique, there are common scenarios that may lead to a hardship discharge. You might lose your job or suffer a disability that keeps you from working, or medical expenses from your disability or illness take up too much of your income. Another possibility is that a natural disaster or man-caused calamity deprives you of your income or savings.
The application process
Obtaining a hardship discharge is not automatic. You must request it by filing a formal motion with the bankruptcy court. This motion should include detailed documentation of the financial hardship and a proposed repayment plan that reflects your current financial situation.
As The Motley Fool points out, about 120,000 Americans filed for Chapter 13 bankruptcy in 2021, so you are hardly alone if you struggle to complete your repayment plan. Fortunately, the bankruptcy process includes different steps to help people relieve their debt burdens and rebuild their financial health.