Although the courts are split on the standards justifying a hardship discharge, incarceration under any formulation does not warrant shedding debt.
A couple were $1,850 and a month short of completing payments on their five-year chapter 13 plan. They sought a hardship discharge under Section 1328(b) because the husband was sent to jail. The wife took care of their two infant children and did not work.
Bankruptcy Judge Clifton R. Jessup Jr. of Decatur, Ala., noted that the courts are split on the showing required for obtaining a hardship discharge. Some courts impose a “catastrophic event” requirement, “while other courts refuse to read the word catastrophic into the statute,” he said.
In his April 14 opinion, Judge Jessup pointed to the First Circuit Bankruptcy Appellate Panel, which found no “express” catastrophic event requirement in the statute. Instead, the panel held that courts should decide whether a debtor was “justly accountable” for a plan’s failure. The BAP said that the statutory word “accountable” is “comparatively mild” compared with “the emotionally-laden term ‘catastrophic.’”
Judge Jessup refused to give the husband a discharge even under the lesser standard because the incarceration was not due to circumstances beyond the man’s control. He cited a case where a wife sought a hardship discharge following her husband’s death. The judge in that case did not grant a discharge because the wife had shot her husband to death.
Judge Jessup did give the prisoner’s wife a hardship discharge because “she should not justly be held accountable.”
Although the courts are split on the standards justifying a hardship discharge, incarceration under any formulation does not warrant shedding debt.