Some of the Top Reasons to Avoid Chapter 13 Bankruptcy by Chris Blanchet
When you first read about the provisions of Chapter 13 bankruptcies it seems like an attractive debt management option. However one of the top reasons to avoid Chapter 13 is that it sets unrealistic goals for the debtor. First you need to understand what chapter 13 is.
If you have an asset that you would rather not lose through bankruptcy such as a mortgaged home your lawyer may advise you to file for Chapter 13. Debtors who have accumulated back taxes or assets with lower value than liens are also encouraged to file Chapter 13. You do not have to repay the entire loan amount provided you can convince the court of your inability to repay the debt in full.
With the retention of non exempt assets being such a big benefit Chapter 13 appears to be a great alternative to Chapter 7 bankruptcy or to having to repay the full amount owed. Since debtors can file Chapter 13 every four years it seems like a short term commitment. However the Chapter 13 repayment plan normally lasts for as long as three to five years during which time debtors repay their debt based on an agreed upon schedule. At the end of this plan the creditors write off the balance provided the debtor maintained his end of the bargain. Sounds like a great debt management solution. But it often is not.
One of the top reasons to avoid Chapter 13 is specific requirements must be met by the debtor. The first thing is that debtors must have a steady income. This means that folks who have experienced temporary setbacks in employment have trouble making ends meet which probably led them to explore such an option are ineligible. Furthermore the income level must actually exceed thresholds determined by the government making Chapter 13 something of an ironic filing as debtors with the capacity to repay their debts would be far better served by repaying the debt in full rather than ruining their credit risking the fall out.
Another one of the top reasons to avoid Chapter 13 is that the debtor falls under the scrutiny of the courts. While accepting this may seem like a fair trade off when compared to the level of debt that gets forfeited many debtors soon realize that they could have easily devised their own repayment plan on their own without such invasive sacrifices. Furthermore Chapter 13 becomes part of the public record. Unlike a traditional budget repayment plan Chapter 13 allows anyone to delve into the debtor's personal financial situation at the time of filing. As well the courts are able to obtain updated data to mandate changes to the plan if the debtor's financial circumstances improve.
What really resonates with debtors is the fact that Chapter 13 also allows win falls such unexpected winnings or inheritance to be surrendered to the trustee in order to repay debt. This means that over the course of the plan the debtor cannot substantially improve his financial affairs. As well spouses may also be required to provide details of assets income expenses even when a Chapter 13 filing is not make jointly.
Rather than filing Chapter 13 debtors with the means to repay their debt should consider creating their own repayment plan sticking to it. This provides a level of privacy by keeping the bankruptcy out of the public domain allows debtors to improve their credit in the meantime rather than ruin it.
Chris Blanchet has more than 16 years of experience in the financial services industry. He contributed to the Personal Finance E Book helpfixmyfinances. com Help Fix My Finances. He maintains a Debt Free Blog howtorepaydebt. com at How to Repay Debt. com. Some of the Top Reasons to Avoid Chapter 13 Bankruptcy
