Filing Chapter 13 Bankruptcy
If you are considering filing chapter 13 bankruptcy it is crucial to take time to become educated about the process. Obtaining debt help through personal bankruptcy is not an easy or inexpensive process. The majority of people who use this strategy to reduce financial burdens often find it causes more harm than good.
Filing chapter 13 bankruptcy requires debtors to retain the services of a bankruptcy lawyer. This can be expensive because new bankruptcy laws require lawyers to certify that all financial information provided is truthful and accurate.
If debtors are untruthful, lawyers can be held liable. Therefore, bankruptcy attorneys must conduct sufficient research to validate reported income and debts. This requires additional time which equates to hire legal fees.
Debtors must comply with the new bankruptcy laws enacted in 2005 under the Bankruptcy Abuse Prevention and Consumer Protection Act. BAPCPA states, debtors must repay a portion of outstanding debts by developing a Chapter 13 payment plan.
What many people fail to understand is that Chapter 13 payments are in addition to normal monthly expenses. Monthly installments often amount to as much as 60-percent of disposable income and can last as long as 5 years. This often places excruciating financial restrictions on debtors and leaves no funds left for unexpected emergencies.
Worse yet, debtors are not allowed to obtain unsecured or secured loans during the repayment phase. While most debtors do not qualify for any type of financing immediately after bankruptcy, this stipulation can be detrimental if debtors require a bank loan 2 or 3 years into their Chapter 13 plan.
Many people file chapter 13 bankruptcy as a way to stop foreclosure. This often acts as a band-aid fix that will later fall apart. If debtors are struggling to pay monthly installments and then must pay additional funds there is a strong probability that they will fail out of bankruptcy.
If debtors are non-compliant with Chapter 13 payments, banks can petition the court to dismiss the bankruptcy petition. If banks are successful with bankruptcy dismissal they are allowed to commence with foreclosure action. Oftentimes, debtors lose their home within a matter of days or weeks.
The disturbing reality is nearly 70-percent of debtors fail out of bankruptcy within the first year. When this occurs debtors lose protection from the court and are unable to file bankruptcy again for at least 8 years.
Debtors should also consider the financial ramifications of Chapter 13 bankruptcy. Not only does this strategy destroy credit ratings, it limits debtors' ability to move past financial hardships. As mentioned earlier, debtors cannot obtain loans or credit cards during the repayment phase. If they complete their payment plan, chances are high they will be forced to pay much higher interest rates for borrowed funds.
The blemish of bankruptcy hangs around for 7 to 10 years. It can cause debtors to pay higher insurance premiums and lose out on employment or housing opportunities due to having a bad credit rating.
Debtors would be wise to investigate bankruptcy alternatives such as home equity loans, debt consolidation or debt settlement. However, caution must be used when entering into debt settlement plans as many companies offering debt help are unable to live up to their promises.
Our bankruptcy article library includes information and resources about all bankruptcy chapters and bankruptcy alternatives. This information is not intended as legal advice, but as a stepping stone to help visitors weigh the pros and cons of all available options. The only way to know if filing chapter 13 bankruptcy is in your best interest is by consulting with a bankruptcy lawyer.
Published on December 22, 2010 at 02:29 AM