Top Reasons to Avoid Chapter 13 - When Bankruptcy is Not the Best Option
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.
If you have an asset that you would rather not lose through a debt, such as a mortgaged home, your credit counselor or bankruptcy trustee may advise you to file for Chapter 13. Debtors who have accumulated back taxes or assets with lower value than liens are also encouraged to file Chapter 13. You do not have to repay the entire loan amount, provided you can convince the court of your inability to repay the debt in full. Chapter 13 allows debtors to keep an asset that does not come under exemption.
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You can file Chapter 13 every four years. In return, you have to come up with an acceptable debt repayment plan that aims to repay loans through your income. Chapter 13 is in force for a period of three to five years, during which you must make weekly or fortnightly payments toward clearing the debt. Creditors must forfeit the remaining amount once Chapter 13 payment plan ends. Until Chapter 13 is in force, your creditors cannot hike interest rates. Sounds too good to be true? It probably 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 have 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.
To clear the loan from your income you will need to forfeit any unexpected profits that come your way during the time Chapter 13 is in force. Suppose you are gifted or willed a new car or make unexpected profits from a side business, the asset might be forfeited toward payment of your loan. Top reasons to avoid Chapter 13 also includes the fact that your spouse may also be asked to provide detailed reports of their assets, income, and expenses, even if you don't file for bankruptcy jointly.
Top Reasons to Avoid Chapter 13 - When Bankruptcy is Not the Best Option