According to available data, only 33% of Chapter 13 bankruptcy cases result in a discharge. For comparison, nearly 96% of Chapter 7 cases succeed. There are many factors involved that result in such a striking failure rate for chapter 13 cases. We list down the 5 biggest reasons why so many chapter 13 cases fail.
1. Loss of Motivation
Filing Chapter 13 is a long and arduous process. Unlike Chapter 7, which usually lasts for only a few months, in the case of Chapter 13, you need to complete a 3-5 year repayment plan before the remaining debt is discharged. Many filers simply get tired of the process and realize that fighting to retain certain properties simply isn’t worth their energy.
2. Not Enough Resources
A lot of individuals filing for Chapter 13 bankruptcy just don’t have the required resources to begin with. Often as a sort of last resort, they file for a Chapter 13 case to stop a foreclosure or lawsuit. It is only when once the process is started that the court discovers that the filer doesn’t have the financial means to go through the Chapter 13 repayment plan and dismiss their case.
3. Sudden Changes in the Financial Status
As mentioned before, a Chapter 13 plan is a long drawn process. During that 3-5 year period, a lot could change that would undermine a filer’s ability to go through the plan. They could lose their job, lose their medical insurance, or incur extra expenses due to some unforeseen circumstances. All this impacts their ability to go through with the repayment plan, and their cases are dismissed as a result.
4. Strategic Reasons
Sometimes, debtors themselves may file for Chapter 13 without the intention of completing it through. They do so for strategic reasons. This could range from wanting to delay foreclosures, to avoiding a lawsuit, to negotiating a new settlement with their creditors. Not all of them would necessarily benefit from discharge, and they drop out halfway through the case.
5. Not Hiring an Attorney
Chapter 13 Bankruptcy is a far more complicated process than most people realize. There is a lot of subjectivity in how the legal provisions are interpreted, and you need an experienced legal profession on your side to help you built up your case. According to a 2011 study by the Bankruptcy Court for the Central District of California, of all those who filed for Chapter 13 bankruptcy without an attorney, only less than 0.5% managed to get a confirmation. In comparison, those filers who were represented by an attorney have a confirmation rate of an astonishing 55%!
Struggling with debt and in need of legal assistance? Book an appointment online or call at 512-640-3340 for a free consultation with a seasoned attorney.