A common kind of bankruptcy that some consumers file in Arkansas to remove debt is Chapter 13. However, data shows that two out of three Chapter 13 cases fail for many reasons.
How Chapter 13 works
Chapter 13 bankruptcy helps the consumer pay back secured debts, such as mortgages, under a plan. The consumer develops a plan to pay back creditors and submits to the court for review.
If the court approves the plan, they commonly have up to five years to complete the plan. Unsecured debts commonly get discharged, which includes credit card debt, past-due utilities and medical debt. Unlike with Chapter 7 bankruptcy, the consumer isn’t required to sell assets as long as they make payments on time.
Reasons Chapter 13 may fail
Chapter 13 requires a filer to have sufficient income to pay debts, and changes in income can impact paying ability. All disposable income must go toward making payments, which can cause consumers to want out after some time.
Sometimes, failure or dismissal occurs when the filer fails to meet court deadlines and submit proper documents. If the consumer is dishonest on the petition, such as attempting to hide assets, the case will not succeed. The filer could get charged with bankruptcy fraud for misrepresenting income or assets on a petition.
Some consumers may attempt to file without an attorney, also known as pro se, because lawyer fees are sometimes expensive. While it may work in simple Chapter 7 cases, the cost of filing without an attorney is often higher. Data from the Central District of California U.S. Bankruptcy Court shows a 94%.1 success rate when filers go through an attorney.
The pros and cons of bankruptcy shouldn’t deter a consumer from filing. Sometimes, it’s the only way to get out of debt and to stop creditor harassment.