Cite as: Keith M. Lundin, Lundin On Chapter 13, § 160.1, at ¶ ____, LundinOnChapter13.com (last visited __________).
11 U.S.C. § 1328(b) permits discharge in a Chapter 13 case “at any time after the confirmation of the plan” if three conditions are met: (1) the debtor’s failure to complete payments under the plan is due to circumstances “for which the debtor should not justly be held accountable”; (2) the debtor has satisfied the best-interests-of-creditors test by distributions under the plan to unsecured claim holders with a present value of not less than what unsecured claim holders would have been paid in a liquidation under Chapter 7; and (3) modification of the plan under § 1329 “is not practicable.”1 The three conditions in § 1328(b) are cumulative—to be entitled to a so-called hardship discharge, the debtor must demonstrate all three conditions.2
The debtor initiates discharge before completion of payments by filing a motion.3 Although Bankruptcy Rule 7001 defines an adversary proceeding to include a proceeding “to object to . . . a discharge,”4 it is generally held that a motion for hardship discharge is sufficient and objections to a hardship discharge need not be filed as an adversary proceeding.5 Some courts hold a hearing on every request under § 1328(b); other courts hold a hearing only if a timely written objection is filed after notice of the debtor’s motion.
It has been held that the debtor has an affirmative obligation to come forward with evidence that the failure to complete payments is due to circumstances beyond the debtor’s control, that the best-interests-of-creditors test is satisfied, and that modification is not practicable.6 Applying this view, one court held that the trustee’s written report in support of the debtor’s request for a hardship discharge was not sufficient—the debtor must specifically prove each of the § 1328(b) conditions.7 Other courts require the debtor to come forward with evidence only upon objection to hardship discharge by a party in interest.
The hardship discharge under § 1328(b) is a liberalized version of § 661 (11 U.S.C. § 1061) of the former Bankruptcy Act, which permitted a discharge after three years after confirmation when the debtor had failed to complete payments under the plan “due to circumstances for which he could not be justly held accountable.” Section 1328(b) of the Code makes a hardship discharge available anytime after confirmation.
1 11 U.S.C. § 1328(b). See In re Cummins, 266 B.R. 852, 855 (Bankr. N.D. Iowa 2001) (“[T]o qualify for a hardship discharge, Debtors must persuade the Court that they satisfy each subsection of 1328(b).”); In re Marrero, 7 B.R. 589 (Bankr. D.P.R. 1980) (There are three standards for hardship discharge: (1) failure to complete the plan is due to factors beyond the debtor’s control; (2) granting of the discharge meets the “best-interests” test; (3) modification of the plan is not practicable. Debtor who had not started payments under a plan did not qualify for hardship discharge.).
2 See In re White, 126 B.R. 542 (Bankr. N.D. Ill. 1991) (Court denied hardship discharge when modification of plan was not possible, but debtor failed to present evidence that the value of property actually distributed under the plan to unsecured creditors was equal to or greater than the amount that unsecured creditors would have received if debtor had been liquidated at the filing, and the nature, extent and degree of severity of the debtor’s physical incapacity was not of such permanence as to justify hardship discharge.).
3 See § 343.1 [ Timing and Procedure for Discharge and Objecting to Discharge ] § 156.1 Timing and Procedure for Discharge and Objecting to Discharge. See, e.g., In re Solano, 234 B.R. 428 (Bankr. E.D. Ark. 1999) (“Motion for Discharge” that failed to establish the three conditions for hardship discharge in § 1328(a) is denied. Debtor is ordered to modify the plan to allow the plan to complete within 60 months, else case will be dismissed.).
4 Fed. R. Bankr. P. 7001(4).
5 See In re Nelson, 135 B.R. 304, 307 (Bankr. N.D. Ill. 1991) (“[O]bjections to a hardship discharge are not required to be filed as an adversary proceeding. There is nothing in the Bankruptcy Code or the Federal Rules of Bankruptcy Procedure which require [sic] objections to a hardship discharge to be filed as an adversary complaint. . . . Instead a motion for a hardship discharge initiates a contested matter.”).
6 In re Schleppi, 103 B.R. 901 (Bankr. S.D. Ohio 1989). Accord In re Nelson, 135 B.R. 304 (Bankr. N.D. Ill. 1991) (The debtor has the burden to persuade the court that all of the three conditions in § 1328(b) are present.); In re White, 126 B.R. 542 (Bankr. N.D. Ill. 1991) (Debtors failed to present any evidence to establish that the value of property actually distributed under the plan to unsecured creditors was equal to or greater than the amount that unsecured creditors would have received if debtors had been liquidated at the filing.).
7 In re Schleppi, 103 B.R. 901 (Bankr. S.D. Ohio 1989).