Once the requisite paperwork is gathered, the debtor must also create a repayment plan that is either to be filed with the Chapter 13 bankruptcy petition or within 14 days of filing it. This repayment plan outlines the method of fixed payments -either monthly or bimonthly-that the debtor will make regularly, over either a three-year or five-year period, depending on the debtor's monthly income. If the plan is confirmed, the trustee will begin distributing the funds to creditors as soon as possible and the method through which he will do so will be discussed at a future date on this blog.
The question today's post will address is what if, after filing the plan for Chapter 13 and having it approved, an Arizona resident's circumstances change and they are unable to complete the plan. In these situations, it might be possible for the debtor to ask for a hardship discharge.
A hardship discharge is granted only if a few conditions are met. First, if the debtor is unable to complete the plan due to circumstances out of their control or through no fault of the debtor, then it may be possible to get a hardship discharge. Second, if creditors have received at least as much as they would have received had the proceedings been under Chapter 7 bankruptcy. Lastly, where it is not possible to modify the repayment plan, such as an illness or injury that precludes the debtor from earning enough to make payments under a modified plan. Where these conditions are met, it may be possible to get a discharge, though it is generally limited and is not available to discharge those debts that cannot be discharged through Chapter 7 bankruptcy.
Though bankruptcy protection is a mechanism through which debtors can discharge most debts and move forward financially with a relatively clean slate, this is only possible if all requirements are met so as to not take advantage of this safeguard. Those whose circumstances change suddenly while going through proceedings are still afforded the same protections and should consider consulting an experienced attorney for guidance on how to proceed.
Source: US Courts, "The Chapter 13 Hardship Discharge," Accessed on Oct. 26, 2015