A Chapter 13 bankruptcy is a valuable resource for people who have a steady income and who need to restructure their debt. This bankruptcy chapter lets people pay their debts, all or some of them, over period of three to five years.
Just like in a Chapter 7 bankruptcy, they get to keep their assets. It might be something like a home or a car. You can keep those in a Chapter 7 or in a Chapter 13. Despite these benefits though, there are some instances where a Chapter 13 bankruptcy can fail.
The number one reason that bankruptcies fail for Chapter 13 is because people don’t make their plan payments. Your plan payment has a job. It’s meant to catch up on mortgage payments or pay some of your unsecured debt.
What happens if you stop making your payments? Let’s say it’s Christmas and you decide you’re going to skip a month of making your Chapter 13 plan payment to the trustee. Then your case is going to get dismissed because one of the requirements is to make regular monthly payments.
That is the number one reason that cases fail. It really requires some long-term planning when you’re in a Chapter 13 for three to five years. During that time, your life might change a little bit.
So if your life changes, let’s say you have another child, then your budget is going to change. If that puts a squeeze on your plan payments, then you definitely need to talk to your bankruptcy attorney. Your bankruptcy attorney can help you make those changes or possibly change the amount of your Chapter 13 plan payments.
Another reason that they fail is because there is insufficient money to do what the Chapter 13 plan is supposed to do. For example, if you have a Chapter 13 plan that has to repay all of your tax debt, but you’re not submitting a plan that’s enough to cover all of your tax debt, then your case is going to get dismissed.
Also, there are some things that you have to file before the end of your plan. You have to file a document called the Domestic Support Application Certification, and you have to do a financial management course online. If you do not do those, your case will be closed without a discharge, and then that defeats the whole purpose of doing your bankruptcy.
Also, if you have filed a bankruptcy, too soon after a previous bankruptcy, you haven’t made all the necessary time limits or things like that, then you might get your case dismissed.
In summary, a Chapter 13 bankruptcy can fail for lots of reasons. These could be inadequate repayment plans, failure to make plan payments, changes in your financial circumstances, failure to do those required courses, filing too soon after previous bankruptcy, and filing without legal representation.
So if you’re thinking about filing a bankruptcy, it’s really, really important that you talk with your bankruptcy attorney to make sure that all these details in your case are addressed. Please don’t hesitate to reach out to us at Lincoln-Goldfinch Law. We’re here to help you answer your financial questions and concerns.