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Most Bankruptcy Plans Fail

Did you know most bankruptcy plans fail within the first year? The reason being is new bankruptcy laws require the majority of bankruptcy petitioners to enter into a payment plan under Chapter 13. Debtors are often required to contribute as much as 60-percent of disposable income to pay off reorganized debts.

Another reason most bankruptcy plans fail is because petitioners do not understand what happens if they do not adhere to their Chapter 13 payment plan. New bankruptcy laws took effect in 2005 under the Bankruptcy Abuse Prevention and Consumer Protection Act. These laws are extremely restrictive and leave petitioners little room for error. One missed payment can result in bankruptcy dismissal.

Overall, BAPCPA has made filing bankruptcy extremely difficult. BAPCPA has also made adhering to Chapter 13 payments next to impossible unless petitioners can increase their income to cover debt payments.

The first step of filing bankruptcy involves finding a bankruptcy attorney. When the Bankruptcy Abuse Prevention and Consumer Protection Act went into affect many lawyers elected to enter into a new field of law.

BAPCPA requires bankruptcy attorneys to submit a certified document stating the information provided by their client is true and factual and that the client has a dire need to obtain bankruptcy protection. If it is later discovered the client failed to disclose truthful information, bankruptcy lawyers can be held accountable.

The next step of bankruptcy requires debtors to submit to the 'means' test which compares their earned income against the median income level of their state of residence. When individuals earn the same or more as state income levels they are usually required to file Chapter 13 and repay a portion of outstanding debts. Those earning less, may be allowed to file Chapter 7 bankruptcy which requires them to liquidate valuable assets to pay off creditors.

Once petitioners submit their bankruptcy petition through the court they attend a 341 creditor meeting to develop a payment plan with creditors. The payment plan is submitted to the court for approval. Chapter 13 payments generally extend for 2 to 5 years. During this time petitioners are not allowed to incur new debt without obtaining court authorization.

Chapter 13 payments are submitted to the bankruptcy Trustee who in turn remits payments to creditors. When petitioners miss Trustee payments their creditors have the right to request the court to dismiss the bankruptcy.

When petitioners experience temporary financial setbacks they should contact their bankruptcy lawyer or the Trustee to work out a plan. Otherwise, they are certain to fail out of bankruptcy and lose all protection from the court.

When bankruptcy plans fail, debtors are responsible for full payment to creditors. If they are unable to remit full payment, creditors can commence with collection actions which can range from obtaining creditor judgments to repossessing valuable property to wage garnishment.

Individuals who file bankruptcy to stop foreclosure and later fail out of bankruptcy are often shocked to discover the bank can commence with foreclosure action at the point where they left off prior to the bankruptcy.

Individuals considering bankruptcy should investigate bankruptcy alternatives such as debt consolidation, debt settlement, or credit counseling. Bankruptcy has far-reaching effects that can prohibit them from obtaining credit for as long as 10 years.

We invite you to learn more about personal bankruptcy and bankruptcy alternatives in our personal finance article library. We offer information and resources to help visitors make informed decisions regarding this life-changing decision. New articles are added each week, so take a moment to subscribe to our mailing list to receive notification of newly published bankruptcy information.

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Published on November 15, 2010 at 03:19 AM

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