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Dangers of Chapter 13 bankruptcy

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New Visitor

Dangers of Chapter 13 bankruptcy

Please be very careful if considering a chap 13 BK.  It is nothing like a chap 7.  Chap 7 is a liquidation program and 13 is a restructured debt program - very different.  If you qualify for a ch 7 that is the only way to go because you walk away free from your debt, but with ch 13 you are FORCED to repay as much of your debt as possible.  Most ch13 plans FAIL - up to 80%!!  Think about that.  If the plan fails (you quit making payments to the trustee) you lose court protection from creditors, plus you have the BK on your credit report.  You are really screwed!

Why do most fail?  It's a debtors prison.  The trustee controls everything abour your finances and srutinizes all income and expenses.  You are expected to pay everything you can to your creditors and then live on the little that's left over.  It's 3-5 years of financial hell and most people give up.  Only makes sense if you are trying to save a house; otherwise, don't do it.  You can negotiate on your own - I've done it with great success.

Message 1 of 13
12 REPLIES
Valued Contributor

Re: Dangers of Chapter 13 bankruptcy

Nobody chooses to do a 13. It all has to do with your disposable income plain and simple.

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Message 2 of 13
New Visitor

Re: Dangers of Chapter 13 bankruptcy

You have a choice between filing and not filing.  My advice: don't do it.

Message 3 of 13
Established Member

Re: Dangers of Chapter 13 bankruptcy

your right life is filled with choices though sometimes Chapter 13 is the best option but I do agree with you sometimes it isn't, each situation is unique and the individual(s) need to make the decision on which option is best for them, I'm 1 year in a chapter 13 and I actually have breathing room again, this was the better option for me (trust me I looked at negotiating, had a lawyer look at negotiating before I filed)

Message 4 of 13
New Visitor

Re: Dangers of Chapter 13 bankruptcy

Yes, each situation is unique, and I was speaking in generalities.  Good luck to you.

Message 5 of 13
Regular Contributor

Re: Dangers of Chapter 13 bankruptcy

You have your opinion and people still have to do what's best for them.  I'm 2 years in my 13 and it's allowed me to flourish again.  I see that light at the end of the tunnel.  If you owe back taxes, chapter 7 won't get you out of that situation.  That and city parking tickets were the main reason I had to file chapter 13.

Message 6 of 13
New Visitor

Re: Dangers of Chapter 13 bankruptcy

Parking tickets and Chap 13!!??  Is that a joke?  Ok...I'm sure you had some hefty fines and an arrest warrant you were running from, but come on.  Did you put a chain around a parking meter, yank it out of the concrete and haul it to your backyard?

Yes, someone people do ok with a chap 13, but again, statisitcally most consumers never complete the program.  That was something my lawyer told me - and he had money to lose.

Message 7 of 13
Established Contributor

Re: Dangers of Chapter 13 bankruptcy


@coreyb80 wrote:

You have your opinion and people still have to do what's best for them.  I'm 2 years in my 13 and it's allowed me to flourish again.  I see that light at the end of the tunnel.  If you owe back taxes, chapter 7 won't get you out of that situation.  That and city parking tickets were the main reason I had to file chapter 13.


You can discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all of the following conditions are true:

  • The taxes are income taxes. Taxes other than income, such as payroll taxes or fraud penalties, can never be eliminated in bankruptcy.
  • You did not commit fraud or willful evasion. If you filed a fraudulent tax return or otherwise willfully attempted to evade paying taxes, such as using a false Social Security number on your tax return, bankruptcy can't help.
  • The debt is at least three years old. To eliminate a tax debt, the tax return must have been originally due at least three years before you filed for bankruptcy.
  • You filed a tax return. You must have filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy. (In most courts, if you file a late return (meaning your extensions have expired and the IRS filed a substitute return on your behalf), you have not filed a "return" and cannot discharge the tax. In some courts, you can discharge tax debt that is the subject of a late return as long as you meet the other criteria.)
  • You pass the "240-day rule." The income tax debt must have been assessed by the IRS at least 240 days before you file your bankruptcy petition, or must not have been assessed yet. (This time limit may be extended if the IRS suspended collection activity because of an offer in compromise or a previous bankruptcy filing.)
  • Were your taxes non imcome?


My posts are JMHO and what I have learned here. I am not perfect, nor claim to be an expert. Just sharing my experiences.
Message 8 of 13
Established Contributor

Re: Dangers of Chapter 13 bankruptcy

Chapter 13 was the best thing I ever did.   I didnt have them taking everything each month.  I was still able to have a great apt and even save.  Sure I took a side gig part time on weekends, but I loved that running store so it wasnt like 'work'.

 

I even got raises, signing bonus, and income tax refunds and my trustee never blinked an eye.  I paid off early too.  I dont understand how 80% ppl fail in 13 (I know they do)...but how?  Do those ppl just start to over extend again...?  I never opted for ANYTHING until I was discharged for a used car about a year before discharge; now 3 years later I have a lot of money (for me) saved, and a brand new house.  I was able to live quite confortably while paying back what I owed. 

 

I'd recommend it to anyone that truly had no other options.  It can change peoples lives.  It did for me.

Message 9 of 13
Established Contributor

Re: Dangers of Chapter 13 bankruptcy

Was your payment very high? How much did you have 'left over' each month?

Total Debt before?

The 'side gig' was that cash tips?
and most important were you in a 100% repayment plan, 3 or 5 year plan?




Message 10 of 13