If payments due under the submitted Chapter 13 plan are missed, the case will be dismissed by the Court . This would mean the debtor is back to zero, with all the benefits of temporary restraint on foreclosures and collection efforts lost.

 

6. Legal fees are higher since it is a more complex procedure.

 

If ever you are considering bankruptcy and Chapter 13 proceeding is your last resort, then you need to get yourself a good lawyer. Most debtors who file a Chapter 13 bankruptcy will definitely need an experienced lawyer who specializes in bankruptcy to find the way in federal laws, state laws and tax consequences. And because it encompasses further contracts to follow, you will need a good legal adviser for that matter.

 

All of these are packaged with higher cost. Thus, additional expenses on a debtor's part would only mean additional burden on his financial status.

 

7. In Chapter 13, the debtor is expected to not sell or otherwise dispose of his property. It is only allowed in some limited circumstances, and can only be done after a hearing and only upon approval by the bankruptcy judge.

 

8. Some debts will survive even if your bankruptcy case is already closed.

 

Just like in Chapter 7, there are still debts provided by law that are deemed non-dischargeable. This means that even if you have already filed bankruptcy and had finished accomplishing all due payments, these non-dischargeable debts must be continuously paid. Such debts are the alimony, certain taxes especially new ones, most student loans, liabilities resulted from drunk driving, and debts incurred through fraud.

 

9. What goes to the debtor goes to the trustee as well.

 

Lump-sum distributions such as personal injury settlements or inheritances received during the case normally will have to be turned over to the trustee. The trustee keeps a percentage, typically 10% of the monthly payment as a fee.

 

10. A debtor pays his debt out of his disposable income.

 

Because a debtor is not allowed to accumulate future debts, the amount being used to pay back debts through the Chapter 13 payment plan is based on the post-bankruptcy income. This means that whatever a debtor gains from his employment will be shared and divided with debt payments together with the other usual necessary expenses. This, in turn, will tie the debtor with the plan over a longer period because of limited and divided income.

 

So, choosing Chapter 13 over Chapter 7 may not be so inviting. However, things look differently when taken into perspective of a Chapter 13 bankruptcy. But then, things still may go overboard when debtors overlook these disadvantages. So, it is still better to estimate every angle of the situation before jumping to a conclusion.

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