Bankruptcy debtors with an active Chapter 13 case often hit a bump in the road and find themselves unable to make their plan payments.
This does not absolutely mean their case was a waste of time. It is possible under the Bankruptcy Code to petition to the court for a hardship discharge, essentially gaining the advantage of the Chapter 13 discharge early without having to complete the full plan.
Hardship discharges are given by the discretion of the judge, so it’s helpful to have a story that will be sympathetic to both a judge and a bankruptcy trustee.
However, here’s a potential bump in the road: According to section 1328 (b) of the bankruptcy code, hardship discharges are only available “at any time after the confirmation of the plan and after notice and a hearing…..” So the plan must be confirmed in order to get a hardship discharge.
That’s typically no problem in New Hampshire, where plans get confirmed or bounced early on, but in Massachusetts confirmation often proceeds at a snail’s pace.
That gives the debtor a tough choice, because plan payments are returned to the debtor (minus the trustee’s commission) if a Chapter 13 case is converted. Those accumulated payments can amount to a considerable chunk of change to a strapped debtor.
So the choice in Mass. may well be between getting a Chapter 13 discharge on a hardship basis, and getting a somewhat lesser discharge in Chapter 7, plus a pile of cash, while foregoing the particular advantage of Chapter 13 in that particular case.
By Doug Beaton