If a debtor fails to complete the Chapter 13 repayment plan, s/he can move a motion in accordance with the Bankruptcy Code §1328(b) for a hardship discharge. The court generally grants a hardship discharge only if three conditions are met:
• If the debtor failed to complete the repayment plan due to certain worse circumstances such as temporary job loss, temporary physical disability, death of the debtor or a family member, illness, and separation. In physical disability case, the debtor has to produce medical evidence for court support.
• If the debtor’s general unsecured creditors acquired at least just as much in Chapter 13 distributions as they would have obtained in the Chapter 7 liquidation. This is normally a hard condition to meet if the debtor doesn’t possess much nonexempt property.
• If the debtor is unable to alter the repayment plan to fix the problem. Generally, the repayment plans are fixed and very low to retain a consistent repayment. However, the debtor has to show the bankruptcy court his/her incapacity to make payments even under a modified plan.
Generally, the court grants a motion for a hardship discharge only on unsecured, non-priority, dischargeable debts. The following debts are generally not wiped out in a hardship discharge:
• priority debts
• secured debts
• arrears on secured debts
• debts that the debtor doesn’t listed in his/her bankruptcy papers
• student loans
• most federal, state, and local taxes, as well as any amounts that the debtor borrowed or charged on a credit card to pay those taxes
• child maintenance, alimony, and debts resulting from a separation or separation verdict
• fines or compensation imposed in a criminal-type court proceeding
• debts for death or personal injury resulting from debtor’s intoxicated motor driving
• debts for dues or special assessments that the debtor owed to a condominium or cooperative organization
• debts that the debtor failed to discharge in a previous bankruptcy which was dismissed due to fraud or misfeasance, and
• debts that the debtor owed to a pension, profit-sharing, stock bonus, or other plan established under various sections of the Internal Revenue Code
In most cases, some of the debts are discharged in a hardship discharge. However, in certain cases the creditors file successful objections to the discharge in the bankruptcy court. These debts would be:
• debts incurred through debtor’s fraudulent acts, including using of a credit card with no repayment
• debts from intentional and malevolent harm that the debtor caused to another person or property
• debts from embezzlement, larceny, or breach of trust arise from debtor’s fiduciary responsibility