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.
For debtors who own leveraged assets, like a home, that they do not want to lose in a bankruptcy liquidation, lawyers will almost always recommend Chapter 13. The same is true when money is owed against an asset whose value is less than the amount owing. One of the most basic premises of Chapter 13 is that it restructures the debt to a point where only a portion of what is owing will get repaid, provided the Courts are convinced the debtor can repay the lower amount and is simultaneously unable to meet the existing, higher payments.
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 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 and 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 and 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 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.
Prior to filing Chapter 13 bankruptcy, debtors would be best served by creating their own, profession budget and repayment plan, especially if they have the means to do so. This not only enables the debtor to keep his financial circumstances out of the public domain but will actually improve his credit rather than ruin it. - 32519
For debtors who own leveraged assets, like a home, that they do not want to lose in a bankruptcy liquidation, lawyers will almost always recommend Chapter 13. The same is true when money is owed against an asset whose value is less than the amount owing. One of the most basic premises of Chapter 13 is that it restructures the debt to a point where only a portion of what is owing will get repaid, provided the Courts are convinced the debtor can repay the lower amount and is simultaneously unable to meet the existing, higher payments.
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 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 and 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 and 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 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.
Prior to filing Chapter 13 bankruptcy, debtors would be best served by creating their own, profession budget and repayment plan, especially if they have the means to do so. This not only enables the debtor to keep his financial circumstances out of the public domain but will actually improve his credit rather than ruin it. - 32519
About the Author:
With more than 16 years of financial services experience, Chris Blanchet currently manages a debt blog at HowToRepayDebt.com that aims to help people with Debt Trouble As well, he is the Editor of Debt Consolidation Opinions.com.
