Chapter 13 hardship discharge: three questions to examine

Incomplete payments require a separate statutory analysis

Section 1328(b) allows a court, after confirmation and notice and a hearing, to grant a discharge despite incomplete plan payments only when specified conditions are met. This is commonly called a hardship discharge. The statute does not make financial difficulty alone sufficient.

The first condition concerns circumstances for which the debtor should not justly be held accountable. A request therefore needs a supported explanation of why payments could not be completed. The cause, duration, and effect of the problem can be relevant to that presentation.

Compare actual distributions with the liquidation benchmark

The second condition examines each allowed unsecured claim. The value of property actually distributed under the plan, measured as of the plan’s effective date, must be at least what that claim would have received in a Chapter 7 liquidation on that date. An overall statement that creditors received some money does not answer the required comparison.

For example, a debtor may have made substantial payments, but the liquidation comparison and allocation among claims still need to be calculated. Payment records, asset values, liens, exemptions, and the plan’s effective date can all be important inputs.

Modification must not be practicable

The third condition is that modification under section 1329 is not practicable. Counsel should examine whether changed payment amounts or timing could provide a workable path before presenting hardship discharge as the only remaining option. The statute requires this separate inquiry rather than allowing it to be assumed from missed payments.

Section 1328(c) also limits the debts covered by a hardship discharge, including exceptions tied to section 523(a). Its scope differs from the discharge following completion of a Chapter 13 plan. Additional discharge requirements and restrictions in section 1328 remain relevant.

Prepare a supported request

• Document the circumstances preventing completion.
• Obtain the trustee’s distribution history and a claim-by-claim comparison.
• Explain why a permissible modification would not work.
• Identify which obligations would remain after the requested discharge.