Although a Chapter 13 bankruptcy debtor generally receives a discharge only after completing all payments required by the court-approved (confirmed) repayment plan, there are some limited circumstances under which the debtor may request the court to grant a hardship discharge even though the debtor has failed to complete plan payments. Such a discharge is available only to a debtor whose failure to complete plan payments is due to circumstances beyond the debtor's control.

The scope of a Chapter 13 bankruptcy hardship discharge is similar to that in a Chapter 7 bankruptcy case with regard to the types of debts that are excepted from the discharge. A hardship discharge is also available in Chapter 12 bankruptcy if the failure to complete plan payments is due to circumstances for which the debtor should not justly be held accountable.

In New Mexico, as in other states, Chapter 13 bankruptcy allows debtors to reorganize their debts and pay them off over a three to five-year period. Normally, a discharge is granted after the debtor completes all payments under the court-approved repayment plan. However, under 11 U.S.C. § 1328(b), a debtor may be eligible for a hardship discharge if they are unable to complete the payment plan due to circumstances beyond their control, such as illness or job loss, and if the debtor has paid at least as much as creditors would have received in a Chapter 7 liquidation case. The debtor must also demonstrate that modification of the plan is not feasible. A hardship discharge is more limited than a standard Chapter 13 discharge and does not apply to certain types of debts, similar to the restrictions in a Chapter 7 case. This type of discharge is also available in Chapter 12 bankruptcy, which is designed for family farmers and fishermen, under similar conditions. Debtors in New Mexico considering a hardship discharge should consult with an attorney to understand the specific requirements and implications.