| Some of the Top Reasons to Avoid Chapter 13 Bankruptcy |
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| Written by Chris Blanchet |
| Sunday, 17 January 2010 17:29 |
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At first glance, the provisions of Chapter 13 bankruptcy might seem like an extremely attractive debt management option. Often, however, the stringent conditions make it one of the top reasons to avoid Chapter 13 bankruptcy. With this in mind, let's take a closer look at what Chapter 13 is really about.
At first glance, the provisions of Chapter 13 bankruptcy might seem like an extremely attractive debt management option. Often, however, the stringent conditions make it one of the top reasons to avoid Chapter 13 bankruptcy. With this in mind, let's take a closer look at what Chapter 13 is really about. 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 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 it can bring your lifestyle under a court mandate. While many people are okay with that kind of regulation over their lives if it helps those clear debts, some debtors feel hopelessly trapped when told where to live, how to travel, what food to eat... Remember, once you file for chapter 13, the court and trustees have the right to look at the minutest details of your income and expenses and order changes that they deem fit. What often discourages debtors from filing Chapter 13 is that they quickly realize they are practically prohibited from substantially improving their financial condition over the course of their plan. This means that any unexpected gains and even an inheritance could be surrendered to the trustee and funneled to the outstanding debt. More intrusive however is that the debtor's spouse can often be required to submit evidence of assets, income, and expenses, even when a filing was submitted 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. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Chris Blanchet has more than 16 years of experience in the financial services industry. He currently manages a website that aims to help people with Debt Trouble at How To Repay Debt.com. |