Opinion
Case No. 96-36511-T Chapter 13.
July 30, 1999.
William C. Parkinson, Jr., Esq., Richmond, VA, Counsel for Debtors.
Robert E. Hyman, Esq. Chapter 13 Trustee, Richmond, VA.
MEMORANDUM OPINION AND ORDER
On May 19, 1999, the court held hearing on the debtors' motion for hardship discharge pursuant to 11 U.S.C. § 1328(b) and the trustee's motion to dismiss. At the conclusion of hearing, the court took the debtors' motion under advisement and continued generally the trustee's motion. For the reasons stated herein, the debtors' motion will be denied and the trustee's motion to dismiss will be set for rehearing.
Findings of Fact
On November 19, 1996, the debtors filed a petition for relief under chapter 13 of the United States Bankruptcy Code. The court entered an order confirming their chapter 13 plan on December 4, 1996.
At the time the debtors filed their plan, Mr. Harrison worked as a route salesman and had a gross monthly income of $2,481.05. Mrs. Harrison's gross monthly income was $1,141.92.
Since entering their chapter 13 plan, Mr. Harrison has been hospitalized for congestive heart failure and diagnosed with diabetes and high blood pressure. As a result of his medical conditions, Mr. Harrison lost his driver's licence in 1998. Because his job required him to drive, he subsequently lost his job. Mr. Harrison's new employment is at a reduced gross monthly pay of approximately $1,573.20. Mrs. Harrison's income remains the same.
Conclusions of Law
In order for a debtor to receive discharge pursuant to 11 U.S.C. § 1328(b) the debtor must prove three elements: (1) that the failure to complete the plan is due to circumstances beyond the debtor's control; (2) that amount paid to allowed unsecured claims equals or exceeds that which the creditors would have received under chapter 7; and (3) a modification of the plan is not practical. See 11 U.S.C. § 1328(b). The debtors bear the burden of proof for all three elements under 11 U.S.C. § 1328(b). See Bandilli v. Boyajian (In re Bandilli), 231 B.R. 836, 839 (B.A.P. 1st Cir. 1999).
The debtors argue that Mr. Harrison's medical problems constitute circumstances for which he should not justly be held liable. Mr. Harrison's physical problems have reduced but not eliminated his earning capacity. Courts are split as to whether a mere reduction in the ability to pay is sufficient for a court to grant a hardship discharge.
The majority of courts considering the issue have allowed a hardship discharge only where the debtor has suffered from catastrophic circumstances which directly impact the debtor's ability to make plan payments. See In re White, 126 B.R. 542 (Bankr.N.D.Ill. 1991) (denying discharge where disability neither permanent nor totally disabling); In re Nelson, 135 B.R. 304 (Bankr.N.D.Ill. 1991) (denying discharge where disability did not prevent employment); In re Graham, 63 B.R. 95 (Bankr.E.D.Pa. 1986) (granting discharge upon death of debtor); In re Bond 36 B.R. 49 (Bankr. E.D.N.C. 1984) (granting discharge where debtor died). Cf. In re Schleppi, 103 B.R. 901 (Bankr. S.D. Ohio 1989) (disability neither catastrophic nor temporary but conceded by trustee).
An emerging minority view, however, takes a less stringent approach in determining which circumstances are sufficient for a hardship discharge. See e.g., In re Bandilli, 231 B.R. at 840; In re Edwards, 207 B.R. 728 (Bankr.N.D.Fla. 1997). According to the minority view, a plain reading of § 1328(b) does not require catastrophic circumstances to justify a hardship discharge. See 11 U.S.C. § 1328(b); see also In re Bandilli, 231 B.R. at 840; In re Edwards, 207 B.R. at 730. Furthermore, these courts reason that a debtor should not be denied the benefit of discharge once the other two prongs of section 1328(b) have been satisfied. In particular the Edwards' court relied on the fact that a hardship discharge entitles a debtor only to the lesser discharge afforded a chapter 7 debtor, rather than the more comprehensive discharge under chapter 13. See In re Edwards, 207 B.R. at 730.
For the purposes of this case, however, the court need not choose between these two approaches to a hardship discharge. The debtors have failed to offer any evidence that they have fulfilled the chapter 7 liquidation test imposed by § 1328(b)(2) or that plan modification is not possible under § 1328(b)(3). The debtors unsubstantiated and conclusory statements on these elements are insufficient. See In re White, 126 B.R. at 547; In re Dark, 87 B.R. 497, 498 (Bankr.N.D.Ohio 1988).
Accordingly,
IT IS ORDERED that the debtors' motion for discharge pursuant to 11 U.S.C. § 1328(b) is DENIED;
and IT IS FURTHER ORDERED that the trustee's motion to dismiss be set for hearing.