Chapter 13 Hardship Discharge

Hardship Discharge. The debtor may request a hardship discharge under 11 USC 1328(b). When circumstances beyond the debtor's control prevent them from completing the Chapter 13 plan, the debtor may apply for a hardship discharge instead of seeking a dismissal of the bankruptcy case.

Criteria. Generally, the debtor must prove three things to the court when seeking a hardship discharge:

Circumstances leading up to the request for a hardship discharge were beyond the debtor’s control (for example, loss of a job);

The value of property actually distributed in the case is at least what would have been distributed in a Chapter 7 case; and,

Modification of the plan is not feasible.

Notice and Hearing. The debtor’s request for a hardship discharge requires notice and a hearing. In rare cases, the IRS may choose to object to the discharge if one of the conditions for discharge is not met. When the notice is received by the CIO, the caseworkers will forward the notice to FI per the guidelines in IRM 5.9.11.4.2, Time Sensitive Mail.

Chapter 7 Equivalency. A hardship discharge is equivalent to the discharge granted in a Chapter 7 case. All of the exceptions to discharge under 11 USC 523 apply to a Chapter 13 debtor who receives a hardship discharge (11 USC 1328(c)). For more information, see IRM 5.9.17.8, Discharge and Exceptions to Discharge, and subsections.)

Method of Closure. To initiate closing actions by ADS when IRS was adequately noticed in the case, caseworkers must add "RI CH7&HARDSHIPCH13 RI" as the method of closure on the AIS Taxpayer Screen when the Chapter 13 debtor received a hardship discharge. The discharge date must be entered in the discharge date field. ADS will systemically determine dischargeability and adjust accounts applying the discharge rules in 11 USC 523. If IRS was not adequately noticed in the case, "No Notice" is added as the method of closure on the AIS Taxpayer Screen (IRM 5.9.17.8.9, Procedures for Processing Bankruptcy Discharges when the IRS Received No Notice or Late Notice in the Asset Case).