Some of the Top Reasons to Avoid Chapter 13 Bankruptcy

By Chris Blanchet

When considering different debt repayment solutions, Chapter 13 bankruptcy often attracts people as a relatively safe solution. But with this type of filing, specific goals must be met. As one of the top reasons to avoid Chapter 13, these conditions often go unnoticed in the investigation stage. Taking a deeper look into Chapter 13 bankruptcy allows us to determine whether it is the right avenue.

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.

Chapter 13 allows debtors to keep an asset that does not come under exemption. You can file chapter 13 every four years. In return, you have to come up with an acceptable debt repayment plan that aims to repay loans through your income. Chapter 13 is in force for a period of three to five years, during which you must make regular payments toward clearing the debt. Creditors must forfeit the remaining amount once chapter 13 payment plan ends. Until chapter 13 is in force, your creditors cannot hike interest rates. Sounds too good to be true? It probably 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 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.

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. - 31382

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