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Fail Out of Bankruptcy Alternatives? Who's to Blame?

The number of people who fail out of bankruptcy is increasing at an alarming rate. When a person files Chapter 13 bankruptcy to reorganize their debt, they must submit a repayment plan to the court. Due to the stringent restrictions imposed by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, many Americans are unable to maintain their repayment plan for more than a few months.

One missed payment can cause a person to fail out of bankruptcy. When this occurs, creditors can petition the court and request the bankruptcy be dismissed. If the court determines the creditors' request is valid, a bankruptcy judge can order the debtor to liquidate their assets through Chapter 7 or entirely dismiss their bankruptcy filing.

When debtors petition the court for bankruptcy, an automatic stay goes into effect. The automatic stay prohibits creditors from beginning or continuing lawsuits, collection attempts, repossessions, foreclosure and garnishments or levies. Automatic stays remain in effect unless a bankruptcy judge lifts it or the debtor obtains discharge of their debts.

If bankruptcy is dismissed, the automatic stay terminates and creditors can begin collection and foreclosure proceedings. Debtors who file bankruptcy to keep avoid foreclosure and later fail out of bankruptcy will likely lose their home. Once the automatic stay is lifted, foreclosure proceedings can resume in as few as three days. For this reason, it is crucial to maintain mortgage payments during bankruptcy proceedings.

If the debtor is unable to make payments, they must contact their bankruptcy attorney immediately. The lawyer will contact the bankruptcy Trustee or creditors involved and attempt to work out a solution. If the problem is temporary and can be rectified within a month or two, creditors will generally work with the debtor. However, if the problem is ongoing the Trustee can elect to allow the debtor to file Chapter 7. Otherwise, the case will be dismissed and the debtor will no longer have protection from the court.

Chapter 13 repayment plans require debtors to adhere to strict compliance. A large percentage of income must be contributed to repaying outstanding debts. Additionally, no new debt can be incurred during reorganization without permission from the bankruptcy court. One financial setback could easily cause debtors to fail out of bankruptcy and lose everything they have tried so hard to keep.

It is imperative to understand the pros and cons of bankruptcy. The new bankruptcy laws make it increasingly difficult for the average American to break free from debt and obtain a fresh start. While it can be tempting to file bankruptcy to get out of debt, it can cause many problems and create a heavy financial burden.

Before filing bankruptcy, consider various bankruptcy alternatives such as debt consolidation, debt settlement and budgeting. Learn more about the various alternatives to bankruptcy, how to avoid foreclosure and debt management options in our informative article library.