Although a Chapter 13 bankruptcy debtor generally receives a discharge only after completing all payments required by the court-approved (confirmed) repayment plan, there are some limited circumstances under which the debtor may request the court to grant a hardship discharge even though the debtor has failed to complete plan payments. Such a discharge is available only to a debtor whose failure to complete plan payments is due to circumstances beyond the debtor's control.
The scope of a Chapter 13 bankruptcy hardship discharge is similar to that in a Chapter 7 bankruptcy case with regard to the types of debts that are excepted from the discharge. A hardship discharge is also available in Chapter 12 bankruptcy if the failure to complete plan payments is due to circumstances for which the debtor should not justly be held accountable.
In Texas, as in other states, Chapter 13 bankruptcy allows debtors to reorganize their debts and pay them off over a three to five-year period. If a debtor is unable to complete the payment plan due to circumstances beyond their control, they may apply for a hardship discharge. The bankruptcy court may grant a hardship discharge if the debtor's inability to complete payments is due to factors such as illness or injury that preclude employment, a change in economic circumstances, or other significant changes that are not the debtor's fault. The hardship discharge is more limited than a full Chapter 13 discharge and is similar in scope to a Chapter 7 discharge, meaning that certain debts like alimony, child support, certain taxes, and student loans typically cannot be discharged. The same principles apply to Chapter 12 bankruptcy, which is designed for family farmers and fishermen. The debtor must demonstrate that the failure to complete payments is due to circumstances beyond their control and that creditors have received at least as much as they would have under a Chapter 7 liquidation case. It's important for debtors considering this option to consult with an attorney to understand the specific requirements and implications of a hardship discharge under Texas law.
