Some of the Top Reasons to Avoid Chapter 13 Bankruptcy
When you first read about the provisions of Chapter 13 bankruptcies, it seems like an attractive debt management option. However, one of the top reasons to avoid Chapter 13 is that it sets unrealistic goals for the debtor. First, you need to understand what chapter 13 is.
When weighing the options that the different types of bankruptcies can offer, understand that debt counselors will recommend Chapter 13 to anyone who owns a leverage asset, such as a home. As well, for a debtor with back taxes or assets that have a lower value that what is owing against them, Chapter 13 will also be the avenue of choice. Typically, Chapter 13 allows the debtor to repay a portion of the debt, rather than the debt in full, provided the debtor can prove sufficiently that he cannot repay the full amount.
In terms of retaining assets, Chapter 13 often allows debtors to hold on to non-exempt assets. As well, debtors can file Chapter 13 after a four year period with the only requirement being that the debtor prepare a debt repayment plan. Normally, the plan devised under a Chapter 13 filing is in place for 3 to 5 years where debtors repay their debt based on a agreed upon repayment plan. Once the plan ends, if there is any amount that the creditors are still owed, they essentially write it off. This is the part that sounds too good to be true and it is.
One of the top reasons to avoid chapter 13 is that the eligibility requirements for this type of bankruptcy exclude people who don’t have a steady income or job. Your problem also might be that you’ve landed in the debt trap because you don’t have a steady income. If you could repay loans through your income alone, you would have done it by now. Second, your income level must be higher than a certain stipulated threshold for you to be eligible.
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.
What really resonates with debtors is the fact that Chapter 13 also allows win falls such unexpected winnings or inheritance to be surrendered to the trustee in order to repay debt. This means that over the course of the plan, the debtor cannot substantially improve his financial affairs. As well, spouses may also be required to provide details of assets, income and expenses even when a Chapter 13 filing is not make jointly.
Rather than filing Chapter 13, debtors with the means to repay their debt should consider creating their own repayment plan and sticking to it. This provides a level of privacy by keeping the bankruptcy out of the public domain and allows debtors to improve their credit in the meantime rather than ruin it.
