Some of the Top Reasons to Avoid Chapter 13 Bankruptcy
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.
In terms of retaining assets, Chapter 13 often allows debtors to hold on to non-exempt assets. As well, debtors can file Chapter 13 after a four year period with the only requirement being that the debtor prepare a debt repayment plan. Normally, the plan devised under a Chapter 13 filing is in place for 3 to 5 years where debtors repay their debt based on a agreed upon repayment plan. Once the plan ends, if there is any amount that the creditors are still owed, they essentially write it off. This is the part that sounds too good to be true and it is.
One of the top reasons to avoid chapter 13 is that the eligibility requirements for this type of bankruptcy exclude people who don't have a steady income or job. Your problem also might be that you've landed in the debt trap because you don't have a steady income. If you could repay loans through your income alone, you would have done it by now. Second, your income level must be higher than a certain stipulated threshold for you to be eligible.
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 and 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 and to mandate changes to the plan if the debtor's financial circumstances improve.
To clear the loan from your income you will need to forfeit any unexpected profits that come your way during the time chapter 13 is in force. Suppose you are gifted or willed a new car or make unexpected profits from a side business, the asset might be forfeited toward payment of your loan. Top reasons to avoid chapter 13 also includes the fact that your spouse may also be asked to provide detailed reports of their assets, income, and expenses, even if you don't file for bankruptcy jointly.
Before considering Chapter 13 bankruptcy, debtors are wise to consider creating their own debt repayment plan, particularly if they have the means to repay their debt. Two of the biggest benefits with this route include keeping the debtor's financial circumstances out of the public domain while simultaneously improving credit rather than ruining it.
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.
In terms of retaining assets, Chapter 13 often allows debtors to hold on to non-exempt assets. As well, debtors can file Chapter 13 after a four year period with the only requirement being that the debtor prepare a debt repayment plan. Normally, the plan devised under a Chapter 13 filing is in place for 3 to 5 years where debtors repay their debt based on a agreed upon repayment plan. Once the plan ends, if there is any amount that the creditors are still owed, they essentially write it off. This is the part that sounds too good to be true and it is.
One of the top reasons to avoid chapter 13 is that the eligibility requirements for this type of bankruptcy exclude people who don't have a steady income or job. Your problem also might be that you've landed in the debt trap because you don't have a steady income. If you could repay loans through your income alone, you would have done it by now. Second, your income level must be higher than a certain stipulated threshold for you to be eligible.
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 and 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 and to mandate changes to the plan if the debtor's financial circumstances improve.
To clear the loan from your income you will need to forfeit any unexpected profits that come your way during the time chapter 13 is in force. Suppose you are gifted or willed a new car or make unexpected profits from a side business, the asset might be forfeited toward payment of your loan. Top reasons to avoid chapter 13 also includes the fact that your spouse may also be asked to provide detailed reports of their assets, income, and expenses, even if you don't file for bankruptcy jointly.
Before considering Chapter 13 bankruptcy, debtors are wise to consider creating their own debt repayment plan, particularly if they have the means to repay their debt. Two of the biggest benefits with this route include keeping the debtor's financial circumstances out of the public domain while simultaneously improving credit rather than ruining it.
About the Author:
Chris Blanchet has more than 16 years of experience in the financial services industry. He contributed to the Personal Finance E-Book Help Fix My Finances. He maintains a Debt Free Blog at How To Repay Debt.com.