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Qualifying for a hardship discharge in a Chapter 13 bankruptcy

On Behalf of | Dec 16, 2016 | Chapter 13 Bankruptcy, Firm News

Sometimes Florida residents experience catastrophic events that prevent them from being able to meet their financial obligations. That is usually when they file for either Chapter 7 or Chapter 13 bankruptcy. However, what happens if a tragedy strikes while an individual is already in a debt repayment plan?

The U.S. Bankruptcy Code does provide for a bankruptcy judge to grant a filer a hardship discharge if he or she meets certain criteria. First, the circumstances preventing an individual from completing the plan must be out of that person’s control. Second, the amount received by unsecured creditors cannot be less than they each would have received under Chapter 7. Finally, it would not be practical to attempt to modify the existing plan.

For instance, an attorney in the midst of a Chapter 13 repayment plan had a debilitating stroke. He was no longer able to work, and his wife has serious health issues as well. The judge presiding over the West Virginia man’s case awarded him a hardship discharge because his health constituted a catastrophic event as required in the code. Even though most courts would have agreed that this man’s situation meets that definition, there are many diverse opinions regarding what that phrase means in bankruptcy courts across the country.

The U.S. Bankruptcy Code exists because it is understood that bad things sometimes happen to good people. Even during a Chapter 13 bankruptcy repayment plan, there are no guarantees that a Florida resident’s situation will not change because of a catastrophic event that will make it impossible to continue making payments under the plan. Fortunately, provisions also exist to provide debt relief to people who can show the court that they meet the requirements for a hardship discharge.

Source: Bloomberg BNA, “Attorney Suffering Stroke During Ch. 13 Case Gets Hardship Discharge”, Diane Davis, Dec. 6, 2016

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