Bankruptcy Lawyer Bryan W. Stone answers the question: “What is Chapter 13 bankruptcy?”
Most people see filing for bankruptcy protection as a chance to start clean and are often excited to finally begin putting their financial troubles behind them. Many people would assume that once the bankruptcy court accepts your petition and puts you on a path towards discharge, the hard work is behind you. Unfortunately, that is not always the case, especially for those filing for Chapter 13 bankruptcy protection.
A recent article discussed how Chapter 13 bankruptcies, those where borrowers agree to repayment plans that last between three and five years, have very high failure rates. Now it should first be noted that “failure” does not necessarily mean that all the participants ended up back in the same situation as before, far from it, many end up achieving exactly the kind of debt reduction they initially sought. Failure only means that they failed to complete the full repayment plan, for whatever reason.
So how many people drop out of Chapter 13 repayment plans? It’s impossible to pin down a number with precision given that things vary wildly depending on where you’re located. Nationally, experts say that only 20 to 25 percent of people actually complete the repayment plan, meaning between 75 and 80 percent drop out. So what do the rest of the people do? Approximately half of those who filed for Chapter 13s wind up dismissing their bankruptcy claims. Another 15 percent have their Chapter 13 repayment plans converted into Chapter 7s.
Why do so many people fail to complete their repayment plans? As with anything, there are often multiple factors at work. First, some Chapter 13 participants use an asset to help pay off debt and get out of the bankruptcy. For instance, someone who refinances a house, getting out equity to pay off debts, would then be able to dismiss the Chapter 13 repayment plan.
In other, less optimistic cases, people drop out because the payment plans are simply too burdensome. Too often, people agree to Chapter 13 plans too quickly, failing to get proper advice from an experienced bankruptcy attorney who knows the ropes. Acting too fast and signing on to a plan that doesn’t work in the long-term can spell serious problems down the road.
People are also often too quick to agree to payments without really thinking through whether those payments are possible for the next three to five years. Sure, you might have the money this month, but if you’re facing a potential job loss or a move or a kid in college or any number of other costly events in the coming years, that payment plan could quickly become too much of a burden to keep up with.
To improve your odds of getting the result your want and completing your bankruptcy repayment plan successfully, take time and move slowly before jumping to accept a deal. Work with experts and get advice. The process can be incredibly complex and it can be a huge help to seek counsel from those who have been there before. Finally, spend time getting familiar with your budget so that once a plan is proposed you’ll be able to tell whether it is something that you can make work long-term.
If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.
About the Author
Kyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology. He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.
Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.
In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.
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