What Will Happen When You Cannot Repay Chapter 13 Debt?
There may come a point where your bills are stacked up so high that you do not see a way to get out of debt. In that situation, it may be best to file for bankruptcy. When debts or income exceeds the requirements to file for Chapter 7 bankruptcy, your only alternative is to file for Chapter 13 and repay your debts over time. Unfortunately, many of people that file for Chapter 13 bankruptcy are unable to pay their debts back. That is why you should be aware of what will happen if you do file Chapter 13 bankruptcy and fail at fulfilling your repayment plan.
An Overview of Chapter 13
If you are not aware of what Chapter 13 bankruptcy is, you must understand how it is different from Chapter 7. Filing for Chapter 7 will discharge you of all debts that are eligible for Chapter 7. Some debts, such child support, student loans, and IRS payments, can never be completely discharged.
Chapter 13 will consolidate your debts into one lump sump, and a percentage of your income will be given to your bankruptcy trustee. They are the ones that will pay off all your debts based on priority. Chapter 13 debt repayment plans can take between 3-5 years on average, which varies based on how much debt you have and how much you make each month.
Why Repayment Plans Fail and What Happens Afterwards
While not all of Chapter 13 debts are completely repaid, a large percent of debt replacement plans that fail. This can happen because you had too much debt, or your income changed and your repayment amount was no longer affordable.
Even if the debt is insurmountable, you may be able to pay off a significant portion of your debt. Once you have done that, you can apply to convert a Chapter 13 bankruptcy into Chapter 7. It does not impact credit scores anymore than what the Chapter 13 bankruptcy already did, and it's fairly easy to do.
If your income changes dramatically and you are unable to meet your payment plan's requirements, this may also qualify you to convert your Chapter 13 bankruptcy into Chapter 7. In order to qualify, your income must have dropped and stayed that way for a long time. Simply losing employment is not enough, as you must show that you are unable to find work and raise your income level again.
Still need more info about filing for bankruptcy? Reach out to a local attorney in your area that specializes in bankruptcy laws, like Bauer & French Attorneys at Law, for any questions you may have.
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