Filing bankruptcy is a big decision and requires total commitment, especially in a Chapter 13 filing. A Chapter 13 is a three to five year legal proceeding that requires that the debtor pay back debts either fully or partially under a repayment plan. This form of bankruptcy is very powerful and can provide serious solutions for serious debt problems. But it can be difficult to live under a strict budget and finance plan for three to five years. If a debtor follows the plan, listens to his attorney, and follows these basic tips, the likelihood of success is greatly increased.
The first major tip is to take a hard look at the budget. A Chapter 13 plan will only work if the debtor can consistently make the plan payments every month. A Chapter 13 debtor’s plan payment is based on several factors, but one of the biggest is the amount of monthly disposable income. The monthly disposable income is calculated by deducting the debtor’s monthly personal and household expenses from his total monthly take-home income. Depending on what debts must be paid through the plan, some expenses may need to be decreased, such as entertainment expenses. This process of creating a budget and analyzing expenses can also serve as a serious reality check that can help increase the chances of success in a Chapter 13 bankruptcy.
Another big tip is to keep the lines of communication open between the debtor and his attorney. Over the course of a bankruptcy, the court mails out many important documents. It is important for the debtor to review these documents and contact his attorney if there are any questions. During the early part of a Chapter 13, creditors will file claims seeking to be paid through the plan. Sometimes these claims are invalid or the dollar amounts are incorrect. These types of issues can make or break a bankruptcy plan. That is why it is important to review these documents thoroughly. Then, if there is a problem, the debtor and his attorney can either object to the claims or make changes to the plan.
That leads to another important tip: be proactive when things change during the bankruptcy. Five years is a long time and anything can happen in a debtor’s life. It is very likely that something like an illness, change of employment, or a car breakdown could throw a wrench in the bankruptcy plan. But if the debtor quickly contacts his attorney they can work on a solution together. There are various procedures that can help the debtor power through a rough patch, like modifying the plan payments, extending the length of the plan, getting court approval to incur new debt (like an auto loan), or getting a loan modification.
The bottom line is that bankruptcy is a big decision that can solve a lot of financial problems. With focus and commitment and the help of an experienced bankruptcy attorney, a successful Chapter 13 bankruptcy is certainly within reach.