Attorney Suffering Stroke During Ch. 13 Case Gets Hardship Discharge

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By Diane Davis

Dec. 6 — An attorney who suffered a debilitating stroke during his Chapter 13 bankruptcy case and was suddenly unable to work can get a hardship discharge ( In re Musgrave , 2016 BL 403834, Bankr. S.D. W.Va., No. 3:05-bk-31246, 12/5/16 ).

Chief Judge Frank W. Volk of the U.S. Bankruptcy Court for the Southern District of West Virginia Dec. 5 concluded that the debtors met all three requirements for a hardship discharge.

A debtor is eligible for a hardship discharge “if the failure to complete payments is beyond the debtor’s control, the amount distributed under the plan to unsecured creditors is not less than the creditor would have received in a chapter 7 case, and modification is not practicable,” according to Bloomberg Law: Bankruptcy Treatise, pt. VII, ch. 235 (D. Michael Lynn et al. eds., 2016), citing Bankruptcy Code Section 1328(b).

Courts are split under Section 1328(b)(1) on whether a hardship discharge requires a “catastrophic event” requirement, the court said. A debtor’s death or permanent disability preventing the debtor from earning an income generally satisfy courts that require catastrophic circumstances to justify a hardship discharge, the court said.

Debtors Raymond Musgrave and his wife Twila both suffer from grave illnesses that require constant medical attention. Raymond is a practicing attorney in West Virginia who has been advised by his doctor that he isn’t able to work after suffering a debilitating stroke.

The debtors filed for Chapter 13 protection in 2005, and their Chapter 13 plan was confirmed in 2011. Chapter 13 bankruptcy allows individuals receiving regular income to obtain debt relief while retaining their property, but to do so, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three to five year period.

The debtors’ Chapter 13 plan is spread out over 60 months and requires monthly payments of $1,897. The plan will result in an estimated distribution of at least 5 percent, pro rata, to unsecured creditors. The debtors have paid $123,790 into the case, and have only $11,383 remaining, the court said.

The Chapter 13 trustee argued that the debtors’ medical conditions pre-dated their bankruptcy filing and weren’t unforeseen, and the debtors’ declining health and cessation of Raymond’s employment were foreseeable.

The court found that Raymond’s unexpected inability to work and live a normal life due to the stroke was enough to satisfy the first prong of Section 1328(b).

The liquidation analysis of the debtors’ confirmed plan showed that a Chapter 7 liquidation would result in a zero percent distribution to unsecured creditors, the court said. Thus, the debtors have shown that they have paid unsecured creditors more than they would have received in a liquidation, which satisfies the second prong of Section 1328(b), the court said.

The debtors also satisfied the third prong of Section 1328(b), the court said. The evidence shows that the debtors can’t support both a plan payment and their extensive medical expenses on their meager income consisting of mostly Social Security benefits, the court said.

Andrew S. Nason, Pepper & Nason, Charleston, W.Va., represented debtors Raymond Gerald Musgrave, and Twila Ahreta Musgrave.

Chapter 13 trustee Helen M. Morris, South Charleston, W.Va.

To contact the reporter on this story: Diane Davis in Washington, D.C. at DDavis@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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