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Fail Out of Bankruptcy

The term, 'fail out of bankruptcy' refers to the debtor's inability to adhere to their bankruptcy repayment plan. Personal bankruptcy includes Chapter 7 and Chapter 13. With Chapter 7, outstanding debts are discharged, while Chapter 13 allows debtors to reorganize their debt and repay it over an extended period of time.

One missed payment can cause a debtor to fail out of bankruptcy. When this occurs, creditors are allowed to petition the bankruptcy court and request dismissal. In most cases, the judge will allow the debtor to explain why they missed their payments. However, if the bankruptcy is dismissed creditors can commence with collection proceedings

Anyone considering bankruptcy should fully understand the ramifications. This is particularly true for people filing bankruptcy to stop foreclosure. Many people fail to understand that in order to keep their home they must continue making their regular mortgage payment in addition to delinquent amounts.

For instance, John Doe's mortgage payment is $1200 per month. He is three months delinquent on his mortgage and owes his lender $3600, plus late fees, interest and legal fees. John is also delinquent on his car payments and owes an additional $1500 to his automobile lender.

John's total monthly expenses are $5000. After filing for Chapter 13 bankruptcy, the court allows John to repay his outstanding debts over a period of three years. In addition to his monthly expense of $5000, John must also make Chapter 13 payments in the amount of $600 per month.

While most people believe bankruptcy is their best option, the question remains... If they are struggling to pay their regular monthly payments, how are they going to pay additional monies each month?

When debtors fail out of bankruptcy, foreclosure proceedings commence where they left off. Using John Doe as our example, let's say his lender would have foreclosed on his home within three weeks if he had not filed for bankruptcy protection. If John fails out of bankruptcy, the lender will revert to the foreclosure process and John will be evicted from his home within the three week period.

Prior to filing bankruptcy, debtors should consider bankruptcy alternatives such as credit counseling, debt consolidation, debt settlement and budgeting. Oftentimes, these alternatives allow debtors to eliminate debts without the financial ramifications associated with bankruptcy.

Our bankruptcy article library provides information on the various bankruptcy chapters and bankruptcy alternatives. We invite you to learn more about your options and discover resources which can help you get back on track and put your finances in order.

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Published on March 13, 2009 at 03:14 AM

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