As part of the massive covid relief and appropriations bill that Congress passed at the end of December 2020 (5,593 pages!), several bankruptcy provisions were added. In particular, Congress added subsection (i) to the provisions of 1328 of the Bankruptcy Code.
Section 1328 describes the discharge available to a debtor in a chapter 13 bankruptcy. The “discharge” is a court order that provides that the debtor is no longer legally liable for the debts listed in the bankruptcy. Put another way, the “discharge” is what every debtor wants – it wipes out your debts. Section 1328 describes exactly what debts go away (discharged) and what debts remain (nondischargeable).
The change added by Congress in the December 2020 appropriations law was to give Chapter 13 debtors the chance to get their discharge early (meaning before the 3-5 year payment plan is completed). Who wouldn’t want to be done with their plan payments early and get a discharge sooner rather than later!?! Here is the exact text of the provision:
Importantly, because this provision was enacted so quickly, there is little to no direction on exactly what Congress intended by this new provision and how Courts should apply the standard. That said, from what we can glean from the statute itself, there are several important factors to obtain an early discharge.
First and foremost, every debtor that wants to take advantage of this new provision must file a motion, provide notice to all parties, and have a hearing on the request.
Second, the statute says that the Judge “may” grant the early discharge and, therefore, has discretion on whether or not to grant the early discharge. Thus, even if you qualify under the factors listed below, the judge might still determine that it would be better to have you complete your plan instead of receiving an early discharge. There is simply no direction in the statute on how the Judge should apply his or her discretion and decide whether or not to grant the relief.
Third (and somewhat obviously), the debtor must not have completed payments the trustee under the plan or to a secured mortgage on a residential property.
Last, the debtor must meet one of two standards. Under the first standard, the debtor must have defaulted on less than three months of payments after March 13, 2020, to a residential mortgage caused by a material financial hardship brought about by the Covid-19 pandemic. It is hard to imagine who hasn’t been negatively impacted by the Covid-19 pandemic! Thus, if you miss no more than 3 mortgage payments on your home, you are potentially eligible for an early discharge.
The second standard provides that (1) the plan provides for the cure of a default and maintenance of payments on a residential mortgage and (2) the debtor has entered into a forbearance agreement or loan modification on that same mortgage. This second standard does not require proof of a Covid-related hardship, but does require a loan modification or forbearance agreement to be in place on a residential mortgage.
If you think you may qualify for this early discharge, please contact Aubrey Thomas to review your case. This early discharge provision sunsets and will no longer be available December 27, 2021.