Three Things You Do Not Want To Do In Chapter 13 Bankruptcy

If you are like most who file Chapter 13 bankruptcy, you do so in an effort to reorganize and pay off your debts. You imagine what life will be like once you get out of debt. Unfortunately, for many people this never happens. This is because only approximately 30% of Chapter 13 bankruptcy filers nationwide successfully complete this process. While those who fail to complete the process are unsuccessful for a wide variety of reasons, there are a few things that you definitely do not want to do if you are attempting to be in this successful minority.

Be Dishonest When You Are Filling Out Your Bankruptcy Paperwork

One of the requirements of filing your Chapter 13 petition and schedules, you must fully disclose several things. These include your

  • Expenses
  • Income
  • Assets
  • Liabilities

Failing to truthfully disclose or misrepresenting any of this information can result in your bankruptcy petition being dismissed, or worse, it may result in you being prosecuted criminally. 

What would you gain by doing this? Some people attempt to file misleading paperwork in an effort to keep their debts within the Chapter 13 bankruptcy limits. These limits are

  • $383,175 for unsecured debt
  • $1,149,525 for secured debt

While these limits, which are subject to change every three years due to inflation, may appear to be high enough to stay under, they may not be if you have failed business debt, high medical bills, or even a high mortgage.

If you suspect that your secured debt may be slightly over the limits, ask your bankruptcy attorney about lien stripping, which may allow you to convert some of your secured debt to unsecured debt.  In addition to this, you may also be able to cram down, or reduce the amount of secured debt you owe.  

Propose An Unrealistic Repayment Plan

The beauty of filing Chapter 13 bankruptcy is that you will be able to repay your creditors over three to five years. Unfortunately, if you do not have a realistic repayment plan, or a repayment plan you can afford, you are not going to be able to meet your obligation successfully. 

When you fill out your plan proposal, ensure that your proposal will fit within your budget while still being able to pay off your debt. If you have numerous obligations that must be paid back or met through your bankruptcy plan, your monthly plan payment may be much higher than what you are able to budget. If this is the case, you may want to reconsider whether or not Chapter 13 is for you. 

Blow Your Budget

As already stated, to be successful under Chapter 13, you must be able to make timely monthly payments. If you blow your budget each month prior to making your payment, you will find you do not have enough money to meet your monthly obligation. 

When you file Chapter 13 bankruptcy how much you will have to pay will be determined by several factors. These include

  • How much disposable income you have - This is the money left over after you pay your reasonable and necessary monthly expenses. This is determined by what you have reported on your income and expense schedules. Your trustee will also consider your means test, which is a calculation that will determine how much money you have available for your creditors. 
  • What is in the best interest of your creditors - You must pay your unsecured creditors at minimum the amount they would have received if you had filed Chapter 7 bankruptcy. Once collected, your payment will then be disbursed first to your secured and priority creditors, and the balance will then be divided among your unsecured creditors. 

Avoiding doing these three things is only the beginning to being successful with your Chapter 13 bankruptcy filing. Your bankruptcy attorney will be able to counsel you and give you other pointers that will help you along the way. You can discover more here.