If you are filing a Chapter 13 bankruptcy, you may find that under its reorganization provisions that there is something called a “hardship discharge.” This allows you to discharge your debts without continued payments if it would cause you a hardship to remain on the payment plan. If you have suffered from a poor economy and had your wages reduced, you may wonder whether wage reduction due to the economy constitutes a hardship.
Hardship Discharge Rules
A hardship discharge is only permitted if you can meet three conditions:
- You cannot continue with you payment plan due to circumstances beyond your control;
- All of your creditors have gotten as much money as they would have recovered if you had have done a Chapter 7 bankruptcy;
- There is no way to modify the current payment plan.
If you meet those three criteria, then the bankruptcy courts will grant you a hardship discharge.
Wage Reduction and Hardship Discharge
In the instance that your wages have been reduced due to the economic crisis that the country is currently facing, you will undoubtedly have to prove how this wage reduction is significant enough to prevent you from either sticking to your current payment plan or modifying your current payment plan.
One of the questions that you will need to be able to answer is how much were your wages reduced? If you were making $55,000 per year and your wages were reduced to $49,000 per year you will need to show concrete evidence to the courts of why a modified version of your payment plan that caters to your lower income cannot be done.
It is necessary for you to always keep in mind the definition of a “hardship discharge” according to the bankruptcy courts. In order to be granted the hardship discharge, your current situation must meet all of the criteria noted in the definition, not just one factor. So, back to the idea of your wages being reduced due to the economy, let’s assume that the wage reduction was much more significant and impacted your life in such a way that perhaps you would require help from public assistance just to survive.
So, for example, instead of making $50,000 you now make $35,000. You are the sole income provider for a family of four and your job has also taken away your benefits. Well now you might have something for the judge to weigh out. Just this bit of information when discussed with a bankruptcy lawyer may be enough to convince them to help you file a motion for hardship.
Since granting a hardship discharge is at the discretion of the judge you may want to have all possible evidence that proves that you have paid your creditors on time and to date they have received as much as they would have should you have filed for a Chapter 7 bankruptcy.
You might consider discussing your options further with your lawyer. If you do not have a lawyer, you should definitely consider retaining one. Your lawyer can help you to determine if you qualify for a hardship discharge and can also help you take the steps necessary to get such a discharge from the court.