When your creditors are closing in and you’re facing loss of your home, vehicle, and even a percentage of your wages, Chapter 13 bankruptcy allows you to get everything under control without losing assets in the process. Unlike Chapter 7, which may require you to surrender property in exchange for a total discharge of all unsecured debt, Chapter 13 helps you handle your debts by:
- Repaying lower amounts via a court-approved repayment plan
- Eliminate accruing debt-related interest, therefore reducing total indebtedness
- Protecting your property from creditor actions
There’s a catch, however. Unlike Chapter 7, the majority of Chapter 13 plans fail before they are completed. The reasons vary, but common ones include:
- Unrealistic budgeting
- Genuine bad faith on the part of debtors (g., filing only to take advantage of the automatic stay)
- Unforeseen factors
The latter includes many of the sudden and unexpected problems that drove you to consider filing for Chapter 13 in the first place, such as job loss, illness, family emergencies, and unanticipated home or car repairs. Because the majority of Chapter 13 trustees require you to divert all disposable income toward debt repayment for the duration of your case (which lasts an average of five years), all you can really do is hope that your financial situation remains stable until you have received your discharge.
Refiling a dismissed Chapter 13
While you can technically refile, bankruptcy courts have traditionally questioned the motive behind refiled cases. At one time, dishonest filers would use Chapter 13 to stop a foreclosure and live in their home for free for as long as possible. Because of these and similar abuses, Congress changed the bankruptcy laws in 2005. Now, if your Chapter 13 is dismissed and you try to refile within one year, then the “new” automatic stay will only be in effect for 30 days unless you can convince a bankruptcy judge that you are refiling in good faith.
Given the possibility that your second Chapter 13 could fail and you don’t have the option to include a fund for future emergencies in your budget, what should you do if your first case is dismissed because, for example, you lost your job? Should you give up certain assets to make the new Chapter 13 repayment plan less costly? Or should you simply look at converting to Chapter 7 and getting a fresh start more quickly?
It’s a decision that’s best made after considering all options and discussing them with a New York bankruptcy attorney. Your goal is to resolve an overwhelming debt situation, and advice from an attorney will help you choose the course of action that is the most compatible with your circumstances. Jayson Lutzky is an experienced bankruptcy attorney. He offers free in person initial consultations. Call his office at 718-329-9500 to set up your appointment or visit www.mynewyorkcitylawyer.com for additional information on the bankruptcy process.