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What is a Chapter 13 hardship discharge?

When financial challenges grow to be too onerous and the decision is made to file for Chapter 13 bankruptcy in Tennessee, the intent is to avoid the liquidation that comes with Chapter 7. Since it is referred to as a "wage earner's plan," those who are employed and have a steady stream of income can come to an agreement to restructure their debts and pay them fully or in part. The payments will be made within three to five years. There are certain criteria that must be in place to use Chapter 13. However, there are also times that the debtor cannot make the payments and a hardship discharge can be given.

Once the plan to repay debts has been confirmed under Chapter 13, a debtor might have a situation that makes it impossible to follow through on the plan. If this happens, then the debtor can make the request that there be a hardship discharge. There are certain reasons why this form of discharge is available to those who have moved forward with filing for Chapter 13. These must be in place before a hardship discharge can be approved.

The hardship discharge will be available if: the debtor fails to adhere to the requirements of the agreement because of circumstances out of the debtor's control and through no fault of his or her own; the creditors have received a minimum of what they would have gotten if there was a Chapter 7; the plan cannot be modified. If the debtor was injured or ill and this has left them unable to work and fund a plan that has been modified, it might be enough to receive a hardship discharge. There are limitations to a hardship discharge and it will not apply to debts that cannot be discharged under a Chapter 7.

With a Chapter 13, the intention on the part of the debtor is to restructure the debt and pay it back with a plan. If the debtor has a reason for being unable to adhere to the terms, there is the chance that a hardship discharge can be granted. Speaking to a legal professional experienced in helping clients with a Chapter 13 bankruptcy is advisable when considering Chapter 13 or a hardship discharge after a Chapter 13.

Source: USCourts.gov, "Chapter 13 - Bankruptcy Basics," accessed July 23, 2015

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Mark T. Young & Associates
2895 Northpoint Blvd.
Hixson, TN 37343

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