There are many tales, most probably apocryphal, of speakers at highly regarded and competitive universities telling incoming students, “Look to your left, look to your right, because one of you three people won’t be here by the end of this year.” It also shows up in old war movies, albeit the prediction’s fulfillment there has obviously more dire consequences.
The same seemingly pessimistic view could apply if the speaker was a bankruptcy trustee addressing a group of Chapter 13 debtors, though in that case the predicted one-third failure rate would, historically speaking, probably be somewhat on the low side nationally.
Why do so many Chapter 13 plans fail (“failure” meaning not completing the repayment plan and getting a discharge)? After all, once your plan is confirmed, all you need to do is make payments like clockwork to the trustee for a few years- with the reward in sight of the elimination of a substantial part of your remaining debts. And, while you may get some tempting credit card offers in the mail not long after you file, you generally can’t take on new debt without the trustee’s approval.
Theories abound as to the reason so many Chapter 13 plans are not completed. In some cases, the debtor’s only real purpose in filing was to delay foreclosure on his or her home. Many of these petitions never even make it to the meeting of creditors stage, and many of the debtors wind up losing their homes in the end anyhow.
Having unreasonable expectations about their ability to live on what can seem (especially to people accustomed to living on credit) to be a very tight budget also dooms some plans. Other unforeseeable factors like involuntary job losses, illness or other adverse life events also prohibit many Chapter 13 filers from completing their bankruptcy successfully.
While it may sound self-serving, many bankruptcy lawyers believe it is virtually impossible for the 10% or so of all those who file Chapter 13 petitions annually without an attorney to successfully navigate their way to a discharge. Other barriers to completion are the debtor’s failure – or inability – to pay certain child support obligations (even if the plan payments are kept current) or to make required post-petition tax return filings.
Improving Your Chances of Success
Failure to complete your repayment plan will usually result in dismissal of your petition. That removes the protection of the automatic stay and puts you pretty much back at square one as far as your debts are concerned. Here are a few things you do to improve your chances of success:
- Remember That Plan Confirmation is Really Just The Beginning. Given our societal love affair with all things instant, the three year duration of a typical Chapter 13 plan can seem like an eternity. Also, having gotten what they want when they wanted it (courtesy of VISA and Master Card, of course), many Chapter 13 filers just can’t get the hang of living within a budget and saving up for new purchases. Just having a realistic outlook and an “I’m in this for the long haul” attitude are important steps in the right direction.
- Keep The Lines of Communication Open. Before you filed, you probably got into the habit of ignoring any debt-related mail or phone calls. Don’t treat communications from your attorney, the trustee’s office or any creditors or their attorneys this way. Read them and respond promptly.
- Don’t Suffer in Silence. If you have a change in circumstances, such as a job loss, extended illness or other calamity, don’t assume all is lost.
Given the right circumstances, the court has the power to help you through a temporary rough time by, among other things, temporarily suspending or modifying your plan payments, extending the length of your plan or letting you take on new debt for an essential purchase (such as a replacement for your car that just died so you can get to work). But neither your lawyer nor the court can be expected to help if you don’t tell them what’s going on.
The Discharge and Dismissal of Your Case
Your case is not over until the court enters an order closing and dismissing it. In most individual bankruptcy cases, the court will close the case soon after the entry of your discharge order. This is a court order that forever relieves you of your legal responsibility to repay the debts that it covers. Certain types of debts cannot be eliminated through bankruptcy and will therefore not be covered by your discharge order.
Once a debt has been discharged in bankruptcy, the creditor can never again legally attempt in any way to collect it. As with violations of the automatic stay while your case is pending, the Bankruptcy Code and other laws contain severe penalties for any creditor who knowingly attempts to collect a discharged debt.
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