How to Avoid Chapter 13 Bankruptcy
Chapter 13 bankruptcy means filing for bankruptcy protection under Title 11, Chapter 13 of the U.S. Bankruptcy Code. A Chapter 13 bankruptcy is also called a wage earner’s plan because it is designed to provide a plan for the debtor to repay all or part of their debts over a period of time. Many people think bankruptcy means they don’t have to pay their debts back. Not so under a Chapter 13. Depending on the debtor’s income in relation to their state’s median income, a Chapter 13 debtor can expect to repay their debts under a plan that will last 3-5 years.
Why Would You File a Chapter 13 Bankruptcy?
You may be wondering what is the point of filing bankruptcy if you have to pay your debts back anyway? That is actually a good question and there are many reasons to avoid Chapter 13 bankruptcy. But before we get to those, here are a couple of the main reasons why someone would file Chapter 13 bankruptcy.
A common reason for filing under Chapter 13 is that the debtor can’t qualify for Chapter 7 bankruptcy because of the Means Test. Essentially, this means that the debtor’s income is too high to qualify for a Chapter 13 bankruptcy. Qualification depends largely on where your income is in relation to Arizona’s median income, which is currently around $55,479 for a two income household. As you can see, it doesn’t take much to be above the median income.
Another reason people file Chapter 13 bankruptcy is because of the potential opportunity to do a lien-strip. A good example of this is a second mortgage on your home. If the value of your home has gone down below the loan amount, you may be able to strip away the loan obligations that exceed the value of the asset. This may mean you could reduce or eliminate a second mortgage. But there are many hoops you have to jump through before doing that and there are no guarantees.
Reasons to Avoid Chapter 13 Bankruptcy
One of the main reasons for avoiding Chapter 13 bankruptcy is because it is still bankruptcy. A bankruptcy filing is one of the most damaging things you could do to your credit score and financial history. It can stay on your credit report for up to 10 years.
Another reason to avoid Chapter 13 bankruptcy is the length of time it can take: 3-5 years to complete a Chapter 13 repayment plan. And there are certainly a number of debtors who never complete the plan and dropout of the program.
Finally, as mentioned above, you will end up paying back all or much of your debt – not really the debt relief you were probably hoping for in a bankruptcy. Of course, there are certainly times when bankruptcy is appropriate. And if you have little or no income and qualify for a Chapter 7, that may be the appropriate action.
But here is an alternative to Chapter 13 bankruptcy.
Have Your Debts Negotiated and Settled by a Licensed Attorney Without Bankruptcy
The concept of debt negotiation, loan workout and settling debts has been around for thousands of years. It’s nothing new. But it is an often overlooked and underrepresented service that a licensed attorney can provide.
Our firm negotiates for large reductions in debt without the need for bankruptcy. And if you’ve been sued, we can defend you. The process is typically much quicker and will cost you less than a Chapter 13 bankruptcy.
To find out if you’re a candidate for debt negotiation & settlement, call for a free consultation.