Sadly, most bankruptcy plans fail because new bankruptcy laws require debtors to contribute a large percentage of income toward repayment of debt.
Payment plans are financially constrictive and usually extend for 2 to 3 years; making compliance nearly impossible if emergencies arise.
Most bankruptcy plans fail during the first year, leaving debtors at the mercy of creditors.
When debtors fail out of bankruptcy, the court no longer provides protection; allowing creditors to repossess items, initiate collections, or garnish wages.
The Bankruptcy Abuse Prevention and Consumer Protection Act severely limited debt relief options.
Prior to BAPCPA, debtors often sought protection through Chapter 7.
This bankruptcy chapter lets debtors liquidate assets to repay debts.
Remaining balances are discharged and debtors are given a clean financial slate.
BAPCPA requires debtors to repay a portion of outstanding debts by establishing payment plans under Chapter 13.
The amount of payments are established through the 'means' test.
Debtors earned income is compared to their states' median income.
When income is higher, debtors must file Chapter 13.
If income is less, debtors may be allowed to file Chapter 7.
The rules and regulations of BAPCPA are complicated, so debtors should retain the services of a bankruptcy attorney.
BAPCPA requires lawyers to submit a letter of certification stating everything presented in the petition is accurate.
Attorneys must conduct thorough research to ensure debtors have accurately reported personal finances.
Otherwise, they could place their self at risk for violating the law.
Added research results in higher legal fees.
Debtors are also responsible for court costs and required credit counseling.
The new bankruptcy laws require debtors to obtain credit counseling before the court will approve their petition.
Counseling must be obtained through specific agencies approved by the court.
Once the Chapter 13 payments are approved, debtors make payments to their assigned bankruptcy Trustee.
Payments are tracked and distributed through the court until debts are fully repaid.
Debtors should keep accurate records of all bankruptcy payments and check statements provided by the court.
It is crucial for individuals who filed bankruptcy to stop foreclosure to stay on track with their payment plan.
When mortgage debt is reorganized and debtors later fail out of bankruptcy, efforts to save their home will be in vain.
Banks can commence with foreclosure proceedings at the point they stopped prior to bankruptcy.
If they were going to foreclose in 10 days, they can foreclose in 10 days after bankruptcy failure.
Filing bankruptcy has far-reaching effects.
Primarily, your credit will be destroyed for several years.
BAPCPA prohibits debtors from incurring new debt until the payment plan obligation is fulfilled.
Those who fail out of bankruptcy won't qualify for credit for at least 2 or 3 years.
When they can obtain credit, they will pay much higher interest rates.
The blemish of bankruptcy can affect automobile, renters and homeowner's insurance policies.
It may also affect employment opportunities and limit housing options.
It is smart to research bankruptcy alternatives to determine if solutions exist that can provide similar results without the severe consequences.
Common alternatives include: credit counseling, debt consolidation, mortgage refinance, home equity loans, and debt settlement.
Sometimes, bankruptcy is the only viable option.
If so, talk to your lawyer about leaving sufficient breathing room in your payment plan offer.
Unexpected expenses are often the root of why most bankruptcy plans fail.