If you’re struggling with financial issues, filing for bankruptcy can offer relief by halting debt collection, stopping lawsuits, and ending wage garnishments. Plus, if your case results in dismissal, it could even erase your debt.
Chapter 13 bankruptcy gives you a flexible debt repayment plan which allows you to make repayments according to your current financial situation. It is a long-term plan whose benefits are worth considering, but if you have done your research online, you may have come across some horror stories and people sharing reasons not to file for bankruptcy. For example, what if you get locked into a plan payment, but then your income increases in your Chapter 13 plan? What if you get locked into a very expensive 100% Chapter 13 plan?
Our article will cover everything you need to know about Chapter 13 bankruptcy horror stories. Can filing for Chapter 13 ruin your life? Are the stories true? We will share some horror stories and a five-step process to avoid these horrors.
The Monthly Payment May Lead to a Chapter 13 Horror Story
The monthly Chapter 13 plan is often based on the Chapter 13 bankruptcy forms. The challenge is that those forms can be extremely confusing to understand how much you will actually pay in your Chapter 13 plan payment.
As such, we built the following free Chapter 13 payment plan calculator to allow you a free estimate based on the bankruptcy forms. You can also compare Chapter 13 to other options such as nonprofit credit counseling (also known as debt management) and debt negotiation.
Can Chapter 13 Bankruptcy Ruin Your Life? See these 5 stories.
Since Chapter 13 bankruptcy is a long-term, flexible debt repayment plan that could take between three and five years, a lot could happen. Here are five bankruptcy horror stories from individuals who filed for Chapter 13 bankruptcy:
1. “Filing Chapter 13 Bankruptcy Ruined My Life”
I spoke with a woman who shared how filing for Chapter 13 bankruptcy turned her life upside down. She described how her lawyer repeatedly modified her repayment plan, each time charging an extra $1,000 for the changes.
She explains how she was struggling with debt and thus, couldn’t afford to keep up with the additional charges, but since she didn’t understand how Chapter 13 works and the legal system, she was obliged to pay. She struggled with the payments and ended up financially worse than when she started.
A common challenge with Chapter 13 is that your attorney can get their full attorney fees before the court grants you a debt discharge.
2. An Increase In Income
You might be wondering why an increase in income could turn into a nightmare. When you file for bankruptcy, the court examines your income and expenses to calculate your disposable income. This, in turn, shapes the repayment plan for you debts.
So, when your income increases, the Chapter 13 repayment plan adjusts to account for the increase in income. Sometimes, the new plan becomes hard and unaffordable to keep up with. This is a common scenario among many debtors, as the new plan becomes unaffordable despite the increased income.
3. Trustee Raises a Motion in Court to Increase Payment
After filing for bankruptcy, the court will appoint a trustee to your case. The trustee assesses your case and gives their recommendation to the court about your case. A lady shares her story about how she had been laid off and changed companies, which increased her insurance premiums.
At the time, her family was also dealing with numerous expenses. She explains how the trustee assigned to her case wanted to take the $197 monthly car payment, which she had finished paying, to pay unsecured creditors. This means that some trustees may demand additional funds to repay unsecured creditors.
4. Property Not Included in the Case
When you file a bankruptcy case with the court, you are obliged to disclose your property and assets. An individual shares details about their case where they had 60% of their take-home pay because an inspection of their home left out $2000 in property from their case.
The individual had taken some high-interest loans to meet their monthly payments, which caused further financial strain. To make matters worse, this person was unable to reach their attorney. The court had decided to dismiss the case, but fortunately, they managed to convert it to a Chapter 7 bankruptcy case.
5. Notice of Dismissal a Month Before Completing the Repayment Plan
After the court agrees to your structured repayment plan, assuming for five years, you need to commit to it. The goal is to receive a bankruptcy discharge and get a fresh financial start. Sadly, this doesn’t happen for some.
Lesa shares her story about how she had committed to her five-year plan but received a notice of dismissal from bankruptcy court a month before completing her plan. The dismissal notice stated a lack of feasibility with a hearing date. Lesa says she believes some creditors wanted her to continue paying her loan.
An individual commented on her story and said if the repayment plan had been wrong from the start, it should have been corrected years ago. Facing a dismissal a few days before hoping to get bankruptcy discharge is inconveniencing and frustrating, to say the least.
5 Steps to Avoid Falling Victim and Experiencing These Horror Stories
Chapter 13 bankruptcy aims to give you a fresh financial start, not causing additional problems. Here is a five-step process you should follow to avoid Chapter 13 bankruptcy ruining your life:
1. Recognize the importance of your repayment plan
Chapter 13 bankruptcy helps you structure a long-term, flexible repayment plan to get rid of debt. The repayment plan is important, and you will need to follow through with it. At Ascend, we have a free Chapter 13 calculator which can estimate the structure of your repayment plan and compare the costs among other debt-relief options. So, first, have a glance at the repayment plan through the calculator and see if you can follow through with it.
2. Compare bankruptcy to other debt-relief options before filing
There are other alternative debt relief options other than bankruptcy. When it comes to debt relief, there is no one-size-fits-all option. Each option is ideal, depending on your needs and current financial situation. So, before filing for bankruptcy, evaluate other debt-relief options and seek the best option for you. Use our calculator to check the costs associated with each debt relief option and use the output to make an informed choice.
3. See which between Chapter 13 bankruptcy and Debt Negotiation will serve you best
If you are sure you want to proceed with bankruptcy after considering other options, do a final analysis between Chapter 13 bankruptcy and debt negotiation. If debt negotiation seems more appealing, choose a reputable company. Do your research on the company and read its reviews before engaging them.
4. Consult an attorney
Seeking the services of an expert is important. If you choose to file bankruptcy, consult a Chapter 13 bankruptcy attorney. Ask them about the process, if your case is good, and whether there will be additional fees. Do a background check on your attorney and review their experience.
5. Create a Budget
Life is unpredictable, and a lot could happen in the three or five years it will take to repay your debt. So account for different scenarios like an increase in income or losing your job and what to do in that case. It will make it easier to deal with these situations when they happen.
Verdict: Is Chapter 13 Bankruptcy Bad?
After reading the above horror stories, you probably wonder if Chapter 13 bankruptcy has any good side. Chapter 13 bankruptcy is not all bad and doesn’t always ruin people’s lives. There are a lot of stories about how Chapter 13 helped people get debt relief and gave them a new financial start.
Besides, you can use our five-step process to avoid horror stories. We shared these horror stories to help you avoid falling victim. Remember to consult a reputable and experienced Chapter 13 attorney to work with on your case. Also, consider other debt-relief options before filing to see which best suits you.
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