Cite as: Keith M. Lundin, Lundin On Chapter 13, § 160.5, at ¶ ____, LundinOnChapter13.com (last visited __________).
A hardship discharge is not available if it is practicable to modify the confirmed plan under § 1329.1 Section 1328(b) does not require that the debtor actually move for modification under § 1329; however, the debtor must be prepared to present evidence that modification is not practicable.2
If the plan has already reached the five-year statutory limitation in §§ 1329(c) and 1322(c), it has been held that modification is not practicable.3 However, it has also been held that a hardship discharge is not appropriate when the debtor waited until the last few months of a 60-month plan to seek relief from difficulties that occurred several years earlier and an earlier application to modify might have solved the problems.4
Modification after confirmation under § 1329 is routinely and easily accomplished in some jurisdictions, and in others it is almost unheard of.5 In a jurisdiction that liberally permits postconfirmation modification, the debtor seeking a hardship discharge under § 1328(b) may bear a substantial burden to prove that no modified plan is practicable. There are reported decisions allowing modification to reduce the percentage payment of unsecured claims to the amount that has actually been paid at the time of the § 1329 request.6 Assuming the debtor can satisfy the best-interests-of-creditors test, good-faith test and other tests for approval of a modified plan under § 1329,7 the availability of modification to simply declare the plan completed at its current level of payment could be an obstacle to hardship discharge. The result may be even more advantageous for the debtor—a modification that declares the plan completed would entitle the debtor to a full-payment discharge under § 1328(a), a broader discharge than is available under § 1328(b).8 One reported decision makes it clear that modification to reduce payments to “time served” is not an alternative to hardship discharge under § 1328(b); rather, when injury to the debtor interrupts performance under the plan, the debtor’s entitlement to an immediate discharge should be determined under the more stringent standards and more restricted discharge provisions of § 1328(b).9
It is not clear whether “practicable” means “confirmable” or something else. Upon the debtor’s motion for modification under § 1329, the court must apply the standards that would be applicable at confirmation of an original plan under §§ 1322(a), 1322(b) and 1325(a).10 How does the debtor prove that the court would not approve any conceivable modification of the plan? To be practicable, must the modification resolve the hardship that provoked the motion?
To accomplish modification of the plan, the debtor would have to demonstrate feasibility under § 1325(a)(6).11 “Practicable” thus indirectly includes some consideration of whether the debtor would be able to complete payments under a modified plan. One court concluded that the debtor’s testimony that he had no disposable income established that modification of the plan was not practicable.12
That Congress did not simply use “inability to modify the plan under § 1329” as the test in § 1328(b)(3) suggests that “practicable” has some content other than the conditions for modification in § 1329. No reported decision suggests what that other meaning might be. It is hard to imagine a modified plan that would satisfy the standards for confirmation and yet be impracticable.
The Code does not require that the debtor modify the confirmed plan if a hardship discharge request is denied under § 1328(b)(3). Put another way, if the debtor loses the motion for a hardship discharge, the debtor has the option of continuing to perform under the original confirmed plan. Absent changed circumstances after the motion for hardship discharge, it would be odd indeed for the bankruptcy court to deny a motion to modify that was consistent with the hypothetical modification the court found practicable under § 1328(b)(3). On the other hand, when these circumstances arise, maybe some bankruptcy court will tell us that there really is a difference between “practicable” in § 1328(b)(3) and the conditions for modification of a plan under § 1329(b)(1).
There is a hidden danger for the debtor in the denial of a hardship discharge under § 1328(b)(3). If the debtor was in default under the plan and the bankruptcy court denies a motion for hardship discharge, it has been held that dismissal under § 1307(c)(6) is appropriate because the debtor has represented in the motion for a hardship discharge that modification is not practicable.13
1 11 U.S.C. § 1328(b)(3).
2 In re Schleppi, 103 B.R. 901 (Bankr. S.D. Ohio 1989) (Debtor has affirmative obligation to specifically explain why modification is not practicable. When it appears from “the record” that modification is a viable option, hardship discharge is appropriately denied.). Accord In re Bandilli, 218 B.R. 273 (Bankr. D.R.I. 1998) (That the debtor presented no evidence that plan modification was impractical is one reason why hardship was denied three and one-half months after confirmation.), aff’d, 231 B.R. 836 (B.A.P. 1st Cir. 1999); In re Edwards, 207 B.R. 728, 731 (Bankr. N.D. Fla. 1997) (Hardship discharge granted to a debtor whose business failed 30 months after confirmation, who testified that he suffered depression requiring medication, suffered the breakup of his marriage and searched extensively for new employment, and when he found a new job, his new income left no disposable income to fund a plan. “The debtor’s testimony that he has no disposable income establishes that modification of the plan is not practicable.”).
3 In re White, 126 B.R. 542 (Bankr. N.D. Ill. 1991) (Modification of plan is not possible because debtors have already exceeded the five-year statutory limitation. No explanation was advanced why debtors did not attempt to modify the plan two or three years earlier to reflect changing circumstances.).
4 In re Nelson, 135 B.R. 304, 307–08 (Bankr. N.D. Ill. 1991) (The events that the debtors claim prevent them from completing payments occurred in 1987 and 1988; the debtors’ motion for a hardship discharge was filed in April of 1991. The earlier events “should have been brought to this Court’s attention at that time and modification of the Plan considered. . . . The third element requires the debtors to prove that modification of the plan is not practicable. Technically, modification of this Plan is not practicable because section 1322(c) limits payments under a plan to five years (60 months) and the Debtors moved for the hardship discharge when they were in the 57th month of their Plan. However, most of the events which the Debtors rely on in requesting this discharge occurred in 1988 when modification of the Plan might still have been practicable. This Court will not find modification is impracticable where the Debtors waited until it was too late to modify their Plan to request a hardship discharge, even though the alleged circumstances giving rise to the hardship discharge occurred at an earlier time. The Debtors have not offered any reason why they waited so long to request a hardship discharge.”).
5 See § 126.1 Standing, Timing and Procedure, § 126.5 Changed-Circumstances Requirement?, § 126.6 Modification after Confirmation after BAPCPA, § 127.1 To Suspend Payments, § 127.2 To Cure Postconfirmation Default, § 127.3 To “Add” Prepetition Creditors, § 127.4 To Provide for Postpetition Claims, § 127.5 To Incur New Debt, § 127.6 To Sell or Refinance Property of the Estate, § 127.7 To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim, § 127.8 To Decrease Payments to Creditors, § 127.9 To Increase Payments to Creditors, § 127.10 To Account for Payments Other Than under the Plan and § 127.11 To Extend or Reduce the Time for Payments.
6 See §§ 265.1 [ To Decrease Payments to Creditors ] § 127.8 To Decrease Payments to Creditors and 268.1 [ To Extend or Reduce the Time for Payments ] § 127.11 To Extend or Reduce the Time for Payments. See, e.g., In re Howell, 76 B.R. 793 (Bankr. D. Or. 1987); In re Eves, 67 B.R. 964 (Bankr. N.D. Ohio 1986).
9 In re Vasquez, 261 B.R. 654, 657, 659 (Bankr. N.D. Tex. 2001) (On the debtors’ motion to modify the plan in the 46th month to reduce payments to the amount paid in light of an injury to the debtor, bankruptcy court describes the proposed modification as “a textbook example of a case for which the hardship discharge provision of § 1328(b) is perfectly suited. By seeking a modification rather than a hardship discharge, the Debtors are indeed manipulating the provisions of the Code and thus the court must question the Debtors’ motivation and sincerity in proposing the modification.” Court finds the modification is “not practicable.” “By the clear wording of the statute, a hardship discharge may not be obtained unless a modification is ‘not practicable.’ From the debtor’s perspective, the discharge obtained under a completed, modified plan is certainly preferable to the more limited hardship discharge obtained under § 1328(b). This is especially so if the proposed modification seeks to merely cease payments to the number of payments already made at the time of modification.”).
10 See 11 U.S.C. § 1329(b)(1), discussed in §§ 254.1 [ Application of Tests for Confirmation ] § 126.2 Application of Tests for Confirmation–257.1 [ Changed-Circumstances Requirement? ] § 126.5 Changed-Circumstances Requirement?.
11 See §§ 198.1 [ Able to Make Payments and Comply with Plan ] § 111.1 Able to Make Payments and Comply with Plan and 254.1 [ Application of Tests for Confirmation ] § 126.2 Application of Tests for Confirmation.
12 In re Edwards, 207 B.R. 728 (Bankr. N.D. Fla. 1997).
13 In re Cummins, 266 B.R. 852 (Bankr. N.D. Iowa 2001).