Chapter 13 repayment plans last between three and five years, and a lot can go wrong in that time period. Debtors can lose a spouse, suffer a serious injury, or develop a chronic disease that makes it impossible to repay all the debts as promised. Fortunately, chapter 13 has an emergency button for debtors in these circumstances: the hardship discharge. One benefit of the hardship discharge is that it gets debtors their fresh starts without dismissing their cases and most importantly without converting to chapter 7. The question debtors might ask themselves is, “Can the economy itself be grounds for a chapter 13 hardship discharge?”
Like many questions in bankruptcy, the answer is it depends on the debtor’s circumstances.
There are three requirements for obtaining a hardship discharge.
- The debtor must show that he or she cannot complete the repayment plan due to “circumstances for which the debtor should not be held accountable.”
- The amount already paid into the plan to unsecured creditors must be equal to or greater than what they would have received in a chapter 7 bankruptcy.
- The debtor cannot modify the plan the plan to ensure repayment.
Clearly, a job loss or a wage reduction during a period of mass unemployment can be affected by all three categories. Some debtors might be able to modify their plans and others might be able to convert their cases to chapter 7. As to the first point though, the debtor is going to have to argue pretty convincingly that the job loss is a situation for which the debtor cannot be held accountable. Usually, these are situations in which the debtor was in a fairly high-paying job to begin with and expected the income from that job to be able to satisfy all of his or her debts.
Trustees tend to be hostile to such motions as well because they don’t want to face a slew of debtors clamoring for a hardship discharge, and bankruptcy courts might not be too sympathetic either. However, an experienced Las Vegas bankruptcy lawyer can argue that your income is unlikely to grow due to the local economy.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-880-5554 to set up your free consultation.