What happens if you are unable to complete your chapter 13 plan?
You may receive a “hardship discharge” if:
- You failed to complete your payments because of circumstances beyond your control.
- Your unsecured creditors already received as much money as they would have received under Chapter 7 bankruptcy.
- Modification of your repayment plan is not feasible.
This can be very helpful under certain circumstances. For example, a client with a small business was unable to continue his plan payments because of Covid. His unsecured creditors were being paid zero in the chapter 13. Only about 30% of his priority income tax had been paid. He was able to stop his payments and received a full discharge of all his unsecured debt. He still owed the income tax, but taxing entities delayed collecting because of covid. After a certain number of years passes, he can probably file another bankruptcy and discharge the tax debt if it becomes a problem. Read my blog entitled “Can income taxes be discharged in bankruptcy?” for more information about this.