Hardship Discharge Case Law

Interpreting "Not Justly Accountable"

The phrase "circumstances for which the debtor should not justly be held accountable" is the most litigated element of Section 1328(b). Courts have developed a body of case law interpreting what qualifies and what does not.

What Generally Qualifies

• Involuntary job loss -- Layoffs, plant closures, employer bankruptcy (but not voluntary resignation or termination for cause)
• Medical disability -- Illness or injury preventing work (see medical/disability page)
• Death of spouse -- Loss of a contributing income earner
• Divorce -- Loss of spousal income where debtor did not initiate and was not at fault (courts are split on this)
• Natural disaster -- Fire, flood, tornado destroying the debtor's home or business

What Generally Does Not Qualify

• Voluntary job change -- Quitting a job, even for understandable personal reasons, is generally considered a voluntary act
• Incarceration -- Most courts hold that criminal conduct leading to incarceration is a circumstance the debtor IS accountable for
• New debt accumulation -- Taking on new debts during the plan period (new car, credit cards) that make plan payments unaffordable
• Failure to maintain insurance -- If a loss occurs because the debtor let insurance lapse

Circuit Variations

While the basic framework is consistent, circuits differ on several issues:

Strict vs. flexible interpretation

Some circuits apply a strict causation test (the circumstance must directly and proximately cause the inability to pay), while others apply a broader "totality of circumstances" approach that considers the debtor's overall situation.

Self-inflicted hardship

The hardest cases involve mixed causation -- a debtor who becomes disabled but whose disability was partially related to voluntary conduct (e.g., accident while intoxicated). Courts are split on how much voluntary contribution disqualifies the debtor.

Foreseeability

Some courts deny hardship discharge when the debtor should have anticipated the problem at the time of plan confirmation (e.g., a pre-existing condition that was worsening). Others focus on the timing of when the condition actually prevented plan payments.