Filing for bankruptcy can be one of the smartest decisions you ever make and bring massive relief when you’re dealing with financial challenges. But it only feels that way if your case is successful.
And when it comes to filing for Chapter 13 bankruptcy, success is easier said than done.
The majority of Chapter 13 cases fail. They meet the criteria after the bankruptcy means test and they are approved by the bankruptcy court to move forward, but the debtor never gets the discharge they so desperately need.
In most cases, failure is due to one of several reasons:
Let’s take a look at a few of these in detail.
Chapter 13 bankruptcy requires a length commitment from the debtor. Repayment plans are three to five years and while that might not seem like a long time if you’ve been dealing with financial struggles for decades, a lot can change in that time.
It is possible to get a Chapter 13 case switched to a Chapter 7 if your income is drastically reduced during the course of your repayment plan, so it’s not as if your bankruptcy is a total failure, but you need to take action and seek advice from a bankruptcy attorney if and when there is a change.
For more information about converting a Chapter 13 bankruptcy to Chapter 7, check out this information from NOLO.com.
One of the biggest mistakes you can make when you decide to file for bankruptcy is going it alone. You have the legal right to file without an attorney, but there’s a high probability your case will not succeed.
Another common mistake with Chapter 13 is filing this chapter to protect your house when your ownership of that house is already doomed. If you’re living in a home that is just too expensive and you cannot now nor will you be able to afford the mortgage payments in the near future, there’s no sense trying to hold onto that house, even if you have the option of doing so. The same goes for other assets you aren’t able to afford. Bankruptcy is about getting clear and making smart financial decisions, so don’t put yourself at a disadvantage right out of the gate.
Be realistic with yourself about what the payments would look like. To get a sense of what your Chapter 13 plan would cost, use the calculator below to estimate your monthly payment.
Under the Bankruptcy Code, all of your disposable income goes to repaying creditors for up to five years. And when it comes to Chapter 13 bankruptcy, all means all. Every last penny based on a formula created by lawmakers.
What are the odds this one-size-fits-all formula is going to fit all?
Not only does it make it so you have absolutely nothing to save leftover after paying creditors, but you also have nothing to put toward unexpected expenses. Any smart financial counselor would encourage you to live below your means and focus on the future, but Chapter 13 debtors are expected to spend every dime they make.
This is a formula for failure.
The final reason Chapter 13 cases don’t succeed? They don’t need to succeed. So it’s not all bad news here.
Some people begin the Chapter 13 process only to discover they don’t need it in the long run. They enjoyed the protection of the automatic stay while they re-negotiated a debt or dealt with a specific situation, but ultimately didn’t need to go through the entire process.
In some cases, what initially began as a Chapter 13 becomes a Chapter 7 before too much progress is made on the case. Bankruptcy is still needed, but the long-term commitment never becomes an issue.
If you think Chapter 13 might be right for you and you want to avoid the problems that so often cause cases to fail, we can help. Contact the Bankruptcy Law Office of Robert M. Geller at 813-254-5696 or schedule an appointment to discuss your situation.
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