Often Oregon debtors in a Chapter 13 bankruptcy will hit a rough spot during their case and request a hardship discharge rather than seek conversion to Chapter 7. Conversion and hardship discharge are not one in the same. There are specific requirements that must be met before you can even be considered for a hardship discharge. The standards for conversion are often much easier to meet.
In order to obtain a hardship discharge, your Oregon bankruptcy attorney must first file a motion requesting the hardship discharge and outlining specifically as to why you would qualify. The first step in the analysis is whether or not your Plan has been confirmed. If it has not been confirmed by the Oregon Bankruptcy Court, you are not eligible for hardship discharge.
The Oregon Bankruptcy Court will allow a hardship discharge only if three elements are present:
- You failed to complete your plan payments due to circumstances for which you are not to blame. It is not enough to have simply lost your job, you must show that the job is lost and that it is unlikely that you will be employed again. An injury will probably not compel the Court to grant your Motion unless the resulting disability is near permanent. In conversion, it is usually enough that you have been laid off or that an injury is now preventing you from working.
- Based on what you have already paid into the plan, your unsecured creditors have received at least what they would have received if you had filed for Chapter 7. For example, if one of your vehicles would have been unprotected in a Chapter 7, you must show that the value of that vehicle has already been paid back to your unsecured creditors. In conversion, you could still convert and simply pay the unpaid equity to the Chapter 7 Trustee.
- Modification of your plan is not practical. Meeting this requirement may be difficult to meet if you are currently paying off secured loans through your Chapter 13 case. When you are seeking a hardship discharge, it is fair for the Court to ask whether you could make even a small payment per month if you surrendered one of your vehicles. This would never come up in conversion.
Ultimately, it may be a great deal easier to convert your case rather than seek a hardship discharge. While conversion means one more 341 hearing and additional fees to your bankruptcy attorney, you can take comfort in knowing that your time and effort devoted to conversion will actually result in discharge.