[COLUMN] What is a ‘hardship’ discharge in Chapter 13?

CHAPTER 13 is a reorganization of your financial affairs where you pay a portion of your debts over 36 months or 60 months depending on where your household income is.

If it’s over the state median for the same size family as yours following current government statistics, then it’s 60 months. If not, it’s 36 months. But in reality, as bankruptcy law is practiced, even if your household is below the median, the Chapter 13 trustee normally wants all of your available disposable income and can and will object to a proposed 36-month plan on the basis of good faith or lack thereof.

Simply put, if you have $500 of disposable income are below the median and propose a 36-month plan, it’s not a slam-dunk case to have your plan confirmed by the court. The trustee will object to the 36-month plan saying that good faith requires you to propose a 60-month plan because creditors can get paid 24 months more at $500 a month, or another $12,000 so your 36-month plan should be denied on the ground of lack of good faith.

What happens if you are now on a 60-month plan paying $800 a month and currently you’re on the 38th month, and tragedy has just struck. By tragedy I mean, you just got COVID-19 despite having your two shots, have been intubated and are on a respirator for a month.

So you pray like you’ve never prayed before as if your very life depended on it because it does. And the Sacred Heart of Jesus, in its infinite mercy answers your prayers and gives you back your life! A week from now, you’re out of the ICU and sent back home to recuperate. Two weeks from now, your test is negative. You’re COVID free.

But even though your COVID free, you’ve lost 30 pounds, can barely walk straight and it looks like you went on a hunger strike for a month. Skin and bones are what you look like now and you need a walker. Hey, but you’re alive and happy to be alive. The problem is you can’t go back to work just yet, and you don’t know if you can continue making the $800 a month Chapter 13 plan payment.

The ‘hardship’ discharge

At this time, there are two kinds of “Hardship” discharge that you might be able to access. In both kinds, you may be able to get a discharge without actually finishing all plan payments.

The first kind is a normal part of bankruptcy law which provides that if you have been permanently disabled that drastically changes your ability to pay, and have already paid a substantial portion of your Chapter 13 plan, you might qualify for a ‘Hardship” discharge. What is a substantial portion of your Chapter 13 plan? Most courts consider at least a 70 percent payment of your plan substantial.

The other kind sunsets at the end of this year unless it is extended. It is pandemic-related relief for those debtors in Chapter 13 that have been negatively impacted by COVID, provided for in the CARES Act, and the CAA. If certain conditions apply, debtors can request the court for a discharge without complying with the substantial portion requirement. Specifically, if you are at least two months behind on your mortgage after a certain date during the pandemic era and are negatively impacted by the pandemic, you can file a motion to request for discharge. If you qualify for instance and you still owe $50,000 on your plan payments, you can now, before the law expires at the end of the year ask for a discharge of the $50K without any further payments. Apparently, courts are given temporary discretion to disregard the best interest of creditors, and disregard the fact that the current market has increased home equities to the moon, beyond the exemptions applicable, and still give the eligible debtor a discharge.

From something bad comes something good. God is in control.

Don’t worry God has a good plan for you, even if something very bad has happened to you. God can and does use something done by the evil one to you to bring about something very good for you and other people. What does this mean?

Joseph is sold into slavery

In Genesis 50:20, the brothers of Joseph throw him into a well and sell him into slavery because they are jealous of him, being their father’s favorite. Their father is Jacob who is the grandson of Abraham, the father of the Israelites. Joseph is 17 years old when he is sold into slavery. He is brought to Egypt as a slave, but in Egypt, he is falsely accused of rape and is imprisoned for 13 years.

Clearly, the evil one has done a number on Joseph. But God gave Joseph the gift of interpreting dreams. The big boss in Egypt, the pharaoh keeps dreaming about 7 fat cows, which are eaten by 7 thin cows. He’s going nuts trying to understand what this means. So he puts up a show, Egypt’s got talent, to see if anyone can interpret his dream. No one is able to give him the right answer. Finally, the chief butler of the pharaoh tells him that there’s this guy in prison who can interpret dreams, Joseph. The pharaoh summons Joseph to his palace.

7 fat cows are eaten by 7 thin cows

Joseph tells the pharaoh that there will be 7 years of extreme abundance followed by 7 years of extreme famine. Then Joseph proposes to the pharaoh that during the years of abundance the extra produce must all be stored in huge barns so that the stored produce will be used to feed the people during the 7 years of famine.

Joseph appointed CEO of Egypt

Pharaoh appoints Joseph as CEO of Egypt and is in charge of the storing and distribution of produce. During the years of famine, the brothers of Joseph go to Egypt to get their ration of food because there’s no food anywhere. Joseph forgives his brothers and takes care of them.

So there you are, from something evil done to him, Joseph is elevated to become the CEO of Egypt and he is able to save the lives of many people including his brothers who sold him into slavery!

This is why Genesis talks about God’s plan for us, that He can turn something evil meant to harm us instigated by the evil one, into something good for us that helps not only us by many people. “As for you, you meant evil against me, God meant it for good in order to bring about this present result, to keep many people alive.” Genesis 50:20

God is truly awesome and all-powerful!

God’s plans are to prosper you not to harm you

Despite all your problems, you can rest assured that our God’s plans are to prosper you and not to harm you. “For I know the plans I have for you,” declares the Lord, “plans to prosper you, not to harm you, plans to give you hope and a future,” Jeremiah 29:11. What can be clearer than this that God loved as so that He sent His only beloved Son, Jesus Christ, who also loved us so, to die for us, to give us a chance to spend eternity with them in heaven. What an awesome and glorious plan for us underserving humans!”

Our God can and does wonders beyond our imagination. When you think all is lost, divine intervention springs out of nowhere to resolve your problems. “Do not call to mind the former things, or consider things of the past. Behold, I am going to do something new, now it will spring up; will you not be aware of it? I will even make a roadway in the wilderness, Rivers in the desert,” Isaiah 43:18-19.

Believe it or not, Walt Disney, filed for Chapter 7 not once, but twice before his Disney global empire became successful. He went on to become a billionaire after getting rid of all his debt twice. Milton Hershey, of Hershey chocolates, the biggest chocolate business in the world, also filed for Chapter 7 once before he became successful and a billionaire.

If you need debt relief, set an appointment to see me. I will analyze your case personally.

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Disclaimer: None of the foregoing is considered legal advice for anyone. There is absolutely no attorney-client relationship established by reading this article.

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Lawrence Bautista Yang specializes in Bankruptcy, Business, Real Estate and Civil Litigation and has successfully represented more than five thousand clients in California.  Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 20274 Carrey Road, Walnut, CA 91789 or 1000 S. Fremont Ave., Mailstop 58, Building A-10 South Suite 10042, Alhambra, CA 91803.

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