Section 1328(b) Hardship Discharge

What Is a Hardship Discharge?

A Chapter 13 bankruptcy plan typically runs three to five years. During that time, the debtor makes monthly payments to a Chapter 13 trustee, who distributes the money to creditors according to the confirmed plan. The debtor receives a discharge under Section 1328(a) only after completing all required payments.

But life does not always cooperate. Sometimes a debtor who was faithfully making payments for two or three years suffers a catastrophic event -- a disabling injury, a terminal diagnosis, the death of a spouse whose income was essential to the plan. When that happens, the debtor faces a choice: dismiss the case and lose all the progress made, or seek a hardship discharge under Section 1328(b).

The hardship discharge exists because Congress recognized that forcing a debtor to choose between dismissal and an impossible plan serves no one. If unsecured creditors have already received at least what they would have gotten in a Chapter 7 liquidation, and the debtor's inability to continue is genuinely not their fault, the law provides a way to close the case with a discharge rather than a dismissal.

However, this is not an easy standard to meet. Courts take the three requirements seriously, and the resulting discharge is narrower than the full 1328(a) discharge. The hardship discharge does not include the "superdischarge" provisions that make Chapter 13 attractive for some debtors.

The Three Requirements -- All Must Be Met

Section 1328(b) sets out three conditions, and the debtor must satisfy all three to obtain a hardship discharge. Failing on even one is fatal to the request.

Requirement 1: Circumstances Beyond the Debtor's Control

The statute requires that "the debtor's failure to complete such payments is due to circumstances for which the debtor should not justly be held accountable." 11 U.S.C. Section 1328(b)(1).

This is the most litigated of the three requirements. Courts look for events that are genuinely outside the debtor's control and that could not have been anticipated or prevented.

The standard is not impossibility -- the debtor does not have to show that continuing payments is literally impossible. But the debtor must show that the circumstances are serious, involuntary, and the genuine cause of the inability to complete the plan.

Requirement 2: The Best Interest Test

Section 1328(b)(2) requires that "the value, as of the effective date of the plan, of property actually distributed under the plan on account of each allowed unsecured claim is not less than the amount that would have been paid on such claim if the estate of the debtor had been liquidated under chapter 7."

In plain English: unsecured creditors must have received at least as much through the Chapter 13 plan as they would have received if the debtor had filed Chapter 7 instead.

This is the same "best interest of creditors" test that applies at plan confirmation under Section 1325(a)(4). The difference is that at the hardship discharge stage, the court looks at what has actually been distributed, not what is projected to be distributed.

How this works in practice: if the debtor has no non-exempt assets (which is common), then unsecured creditors would have received nothing in a Chapter 7 liquidation. In that case, even minimal payments through the Chapter 13 plan will satisfy the best interest test. But if the debtor owned substantial non-exempt property -- equity in a home above the homestead exemption, valuable vehicles, investment accounts -- then the Chapter 7 liquidation value could be significant, and the debtor may need to have paid a substantial amount before this requirement is met.

Requirement 3: Modification Must Be Impracticable

Section 1328(b)(3) requires that "modification of the plan under section 1329 of this title is not practicable."

This is the gatekeeping requirement. Before the court will grant a hardship discharge, it needs to know that the debtor has considered -- and rejected as unworkable -- the alternative of simply modifying the plan.

Section 1329 allows plan modification after confirmation. The debtor can reduce monthly payments, extend the plan term (up to 60 months), or change the treatment of specific claims. If any of these modifications would allow the debtor to complete the plan, the court will deny the hardship discharge and direct the debtor to modify instead.

When is modification impracticable? When the debtor's income has dropped to zero or near-zero permanently. If a debtor is permanently disabled and receiving only minimal Social Security disability income, no amount of plan modification will generate the payments needed to complete the plan. That is when modification is truly impracticable.

When is modification still an option? If the debtor lost a job but is actively seeking employment. If the debtor's income dropped but could sustain reduced payments over an extended term. If the debtor has other sources of income that could be redirected. Courts expect debtors to exhaust the modification option before seeking the more drastic remedy of a hardship discharge.

The Hardship Discharge Is Narrower Than a Full Discharge

This is the critical point that many debtors do not understand until it is too late: the hardship discharge under Section 1328(b) does NOT include the Chapter 13 "superdischarge" provisions.

Under Section 1328(c)(2), a hardship discharge does not discharge any debt that would be excepted from discharge under Section 523 in a Chapter 7 case. This means the hardship discharge has essentially the same scope as a Chapter 7 discharge.

Debts that survive a hardship discharge include:

• Domestic support obligations -- child support, alimony, spousal maintenance (Section 523(a)(5))
• Debts obtained by fraud -- false pretenses, false representations, actual fraud (Section 523(a)(2))
• Fiduciary fraud and embezzlement -- defalcation while acting in a fiduciary capacity, embezzlement, larceny (Section 523(a)(4))
• Willful and malicious injury -- intentional torts (Section 523(a)(6))
• Student loans -- unless the debtor can show undue hardship (Section 523(a)(8))
• Certain tax debts -- depending on age and type (Section 523(a)(1))
• DUI/DWI debts -- death or personal injury caused by intoxicated driving (Section 523(a)(9))

By contrast, the full 1328(a) discharge -- available only after completing all plan payments -- can discharge certain property settlement obligations from divorce (Section 523(a)(15) debts) that survive both Chapter 7 and hardship discharges. This is one of the remaining "superdischarge" advantages of completing a Chapter 13 plan.

The Process: How to Request a Hardship Discharge

The hardship discharge is not automatic. The debtor must affirmatively request it by filing a motion with the bankruptcy court. Here is the typical process:

1. File a motion -- The debtor (or debtor's attorney) files a motion for hardship discharge under Section 1328(b), along with a supporting declaration or affidavit explaining the circumstances.
2. Provide evidence -- The debtor must present evidence supporting all three requirements. Medical records for disability claims. A death certificate if the co-debtor died. Termination letters for job loss. A comparison of what unsecured creditors received versus what they would have received in Chapter 7. An explanation of why plan modification would not work.
3. Notice to creditors -- Creditors and the Chapter 13 trustee must receive notice of the motion and an opportunity to object.
4. Trustee's position -- The Chapter 13 trustee will review the motion and may support it, oppose it, or take no position. The trustee's view carries significant weight with many judges because the trustee has direct knowledge of the debtor's payment history and financial situation.
5. Hearing -- The court will schedule a hearing. The debtor may need to testify. If creditors object, they will have an opportunity to cross-examine the debtor and present their own evidence.
6. Court ruling -- The judge decides whether all three requirements are met. If yes, the court enters a hardship discharge order. If no, the debtor must either modify the plan, continue payments, or the case may be dismissed.

Strategic Considerations

Timing matters. A debtor who has made three years of payments and then becomes disabled has a much stronger case than a debtor who stopped paying after six months. The longer the payment history, the more likely the best interest test is satisfied and the more sympathetic the court will be to the circumstances.

Documentation is everything. Vague claims of hardship will not succeed. The debtor needs medical records, employer letters, financial statements, and any other documentation that proves the circumstances are genuine, involuntary, and permanent (or at least long-lasting).

Consider the alternatives. Before filing a hardship discharge motion, evaluate whether plan modification under Section 1329 could work. Extending the plan to 60 months, reducing payments, or changing claim treatment might be a better path -- especially because it preserves the full 1328(a) discharge scope including the superdischarge provisions.

Conversion to Chapter 7. In some situations, converting the case to Chapter 7 under Section 1307(a) may be preferable to a hardship discharge. If the debtor qualifies for Chapter 7 (passes the means test or qualifies under the totality of circumstances), conversion produces a similar discharge scope and may be procedurally simpler. However, conversion exposes non-exempt assets to liquidation, which may not be acceptable.

Frequently Asked Questions

What is a hardship discharge?

A hardship discharge under 11 U.S.C. Section 1328(b) allows a Chapter 13 debtor to receive a discharge without completing all plan payments. It requires meeting three conditions: the failure to complete payments is due to circumstances beyond the debtor's control, unsecured creditors have received at least as much as they would have in a Chapter 7 liquidation, and modification of the plan is not practicable. The resulting discharge is narrower than a full Chapter 13 discharge -- it has essentially the same scope as a Chapter 7 discharge.

Do I have to try plan modification before requesting a hardship discharge?

Yes. Section 1328(b)(3) requires that modification of the plan under Section 1329 must not be practicable. Courts generally expect the debtor to demonstrate that modification has been considered and rejected as unworkable. If your income has permanently dropped to zero due to disability, modification clearly would not help. But if your income merely decreased and could sustain reduced payments over an extended term, the court will likely direct you to modify rather than grant a hardship discharge.

What debts survive a hardship discharge?

A hardship discharge under Section 1328(b) has the same scope as a Chapter 7 discharge. All debts listed in Section 523(a) survive, including: domestic support obligations (child support, alimony), debts obtained by fraud, fiduciary fraud and embezzlement, willful and malicious injury, student loans (absent undue hardship), certain tax debts, and DUI/DWI injury debts. The hardship discharge does NOT include the Chapter 13 superdischarge provisions.

How much do I need to have paid into the plan to get a hardship discharge?

There is no minimum payment percentage specified in the statute. The requirement is that unsecured creditors must have received at least as much as they would have received in a Chapter 7 liquidation (the best interest test). If the debtor has no non-exempt assets -- which is common -- then unsecured creditors would have received nothing in Chapter 7, and even minimal plan payments will satisfy this test. If the debtor had substantial non-exempt assets, more plan payments may be needed before this requirement is met.