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In dire cases, Chapter 13 allows for hardship discharge

Filing for chapter 13 bankruptcy can provide relief from overwhelming debt for many working individuals. Under chapter 13, consumers with regular income can develop a payment plan to repay all or a portion of their outstanding debts. Generally a chapter 13 plan runs from three to five years. Regardless of the amount paid under a confirmed plan, all of the general unsecured debt will be eliminated provided the chapter 13 payments are made throughout the course of the proceeding.

However, in some cases an individual's circumstances may change during the course of the chapter 13 bankruptcy. What happens if an individual suffers personal injury or illness during the course of a chapter 13 bankruptcy. Are there any options?

One option may include seeking a chapter 13 hardship discharge. A hardship discharge allows a qualifying individual to gain an early release from the debts covered by the repayment plan. Creditors are prohibited from initiating or continuing any legal or other action to collect the discharged debt.

Not everyone is eligible for a hardship discharge. Under U.S. bankruptcy court rules, a hardship discharge may be available if three general conditions are met:

  • Failure to complete plan payments must be due to circumstances beyond the individual's control and through no fault of the individual
  • Creditors must have received at least as much from the payment plan as they would have received had the individual filed under chapter 7
  • Modification of the plan is not possible under the circumstances

Generally, very serious personal injury or illness preventing the individual from working satisfies this condition.

Chapter 13 bankruptcy hardship discharges are a rather complex legal topic. An experienced Ohio bankruptcy attorney can answer your questions and advise an individual as to whether this is a viable option. They may also discuss whether you would be better served by pursuing an alternate course of action, such as modification.

Source: United States Courts, "Individual Debt Adjustment."

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