40% of Chapter 13 fail.... WHY ???

[klandsb]

I just read somewhere that 40% of all Chapter 13 bk fail... I guess I am kinda puzzeled... Maybe its because of my particular situation but I would rather just make the pmts for 5 yrs to my unsecured and be done with...
Is it the pmts are set to high in the first place ???

[MSbklawyer]

It's been my experience that the ones that fail do so because people just try to hang onto too much stuff. They haven't learned yet to live within their means. So in the middle of the bankruptcy plan when life gives them a little bump in the road, everything spins out of control. Others fail for reasons similar to what usually puts people into bk in the first place: Job loss, illness, divorce &c. Quite a few fail because the debtor just doesn't care. The heat is off now, the creditors have quit calling, so he switches jobs and neglects to get his wage order changed over, or just quits making payments, or lets his car insurance lapse.

[optimistic1]

Agreed, I have read it for a total lack of responsibility of adhering to the plan, or, its a pro se filer that did not develop a liveable plan.

[Scott50]

I think a more accurate way of looking at this would be what % of Chapter 13 plans make it to completion.. I've seen figures that reference only 1/3 of make through to discharge... Take into account the number of Ch13 filers that convert to a Chapter seven due to a change in financial circumstance... I'd like to see some statistics on the number of Ch7 filers that are in financial/debt problems after they've had their debt was "discharged"...

[walkthaplank]

It's been my experience that the ones that fail do so because people just try to hang onto too much stuff. They haven't learned yet to live within their means. So in the middle of the bankruptcy plan when life gives them a little bump in the road, everything spins out of control. Others fail for reasons similar to what usually puts people into bk in the first place: Job loss, illness, divorce &c. Quite a few fail because the debtor just doesn't care. The heat is off now, the creditors have quit calling, so he switches jobs and neglects to get his wage order changed over, or just quits making payments, or lets his car insurance lapse.

I think also part of it is unrealistic expectations regarding expenses. The IRS standards for housing and utilities in my area for 5 or more people are:

non-mortgage $527 mortgage $1,467

You can't rent a place around here for under $1500, realistically for a 3 bedroom closer to 1800. My lawyer was telling me that the biggest objection I'm likely to face on my expenses is my 1st mortgage payment being $2k. If I give up my home I'm likely going to be paying very similar in rent plus security deposits (that will be high especially now that I'm in an active 13), 1st and last plus all new utility deposits (because I'm in an active 13). Add to that, losing tax benefits of mortgage interest deductions.

If the trustee hammers me on the mortgage and ups my payment by that amount, my 13 WILL fail. It will be designed to fail.

[woeisme]

I don't know that it's that so many fail, it's that many are converted into CH 7's. Also, some people file solely to protect a secured asset, and only make payments until the priority claims are paid off, then quit because they never had any intention of paying off the unsecureds. So while it looks like a "failed plan" on paper, it actually did exactly what the debtor intended it to do, gave them breathing room to take care of priority debt. I think it's gaming the system, but it's perfectly legal.

I know many people who pay more than the IRS standards for housing in their CH 13's, so I'm hoping that doesn't turn out to be an issue for you walkthaplank.

[justbroke]

Also, some people file solely to protect a secured asset, and only make payments until the priority claims are paid off, then quit because they never had any intention of paying off the unsecureds.

That would be the dumbest thing in the world to do. Just because you protect secured assets and then "quit" the Plan... the unsecured creditors just come right back with a vengeance. This vengeance includes, but is not limited to judgments and judgment liens... and even foreclosures in some cases (like for HOA, property tax liens and the IRS). Unless you live in a State that has great homestead protection, this would be a very very bad choice. (Disclaimer: I live in Florida and we enjoy the unlimited homestead exemption. Still, I wouldn't use the process in this manner because Judgments can be bad.)

I know many people who pay more than the IRS standards for housing in their CH 13's, so I'm hoping that doesn't turn out to be an issue for you walkthaplank.

When I was "temporarily" a renter... the Trustee never complained about me being $800/month over the IRS standard.

When they talk about plan failures, they are not talking about conversions. They are talking about cases being closed without a discharge (under any Chapter). If you factor in conversions, I believe the number jumps from 40% to a 67% rate of "non-completion".

And the Stats are skewed. I have been in the courtroom several times where an attorney asked the Judge to just dismiss the Chapter 13 case, and they'd refile a new Chapter 7 case. This appeared to be a common practice and the Trustee actually suggested it. (Converted cases keep the same case number, so I don't see them as showing as a "non-completed" Chapter 13.)

[hughthehand]

Agreed, I have read it for a total lack of responsibility of adhering to the plan, or, its a pro se filer that did not develop a liveable plan.

I filed pro-se. My plan was livable. The trustee jacked it up to the point I'm already pushing 30 days delinquent. The past year and a half has been total hell. I'm about to default. Not through neglect, but sheer exhaustion.

[sassiebaz]

I can't imagine our CH13 failing...or we failing it? $72/mo. May convert after 2 years, may not.....paying cash for everything feels so good!

[klandsb]

SO in Hughthehands case what if he decided ,after the trustee as he states "jacked it up", decides I just dont think this is going to work for me...Is there any recourse..Can u appeal the trustee's plan or something....

[Flamingo]

I just read somewhere that 40% of all Chapter 13 bk fail... I guess I am kinda puzzeled... Maybe its because of my particular situation but I would rather just make the pmts for 5 yrs to my unsecured and be done with...
Is it the pmts are set to high in the first place ???

After going through the entire process, all the ups, downs, emotions, realizations...the main reason why so many plans fail is the inability of the filer(s) to adjust or adhere to a whole different lifestyle without credit and the inability to learn to budget. It's hard for many folks to go from shopping at high end stores to go to the Dollar Store or Walmart, or (horrors) shop discount and bulk. Many people have to learn to cook at home and pack lunches and not spend $50 a day and up to eat out. When you've lived over and above your means for years or relied on credit too much, it's a huge reality check to live on a strict bare bones budget. My hubby and I had many sleepless nights trying to figure out how to make it with $10 left in the checking account on Tuesday and payday was that Friday. We managed, scraped, learned and now three years past discharge have a totally different way of life than prior to filing and have learned to do without, discuss purchases before impulse buying, compare items and not give two hoots what the Jones and Smiths have in their driveway or on their lawn down the street.

My experience and reading numerous postings on this forum over the years indicates that the majority of 13's fail due to the lifestyle change and the inability/refusal to adjust or learn to budget that goes with it.

[woeisme]

That would be the dumbest thing in the world to do. Just because you protect secured assets and then "quit" the Plan... the unsecured creditors just come right back with a vengeance. This vengeance includes, but is not limited to judgments and judgment liens... and even foreclosures in some cases (like for HOA, property tax liens and the IRS). Unless you live in a State that has great homestead protection, this would be a very very bad choice. (Disclaimer: I live in Florida and we enjoy the unlimited homestead exemption. Still, I wouldn't use the process in this manner because Judgments can be bad.)

Not advocating it, just saying it happens. Done a lot of reading in the past couple years on BK, and have seen this strategy reported many times. As someone with only unsecured debt being paid in my plan, can't imagine why someone would want to do this, but apparently it happens a lot from what I've read. Maybe the house is about to be foreclosed on, so the CH 13 is just a dodge until the arrears get paid and the person doesn't care about the unsecured debt, maybe are judgment-proof, has no plans to ever move so doesn't care about a lien, who knows? I can't see destroying your credit like you do with a CH 13 and not coming out of it with your debts wiped clean, no matter how hard the 3-5 years, but that's just me. But if they were waiting to file CH 7, maybe because they had filed one too recently to refile, could be a useful strategy. There are people out there who really know how to take advantage of the system, which tends to mess things up for those who just need honest relief from crushing debt, unfortunate by true.

[justbroke]

Not advocating it, just saying it happens. Done a lot of reading in the past couple years on BK, and have seen this strategy reported many times. As someone with only unsecured debt being paid in my plan, can't imagine why someone would want to do this, but apparently it happens a lot from what I've read.

Oh, I agree that this happens. I've just read a few cases -- because I'm studying conversion for some reason -- and in one case the debtor converts and re-converts, dismisses, re-files, converts... in a seemingly endless pattern. They finally got caught on bad faith. The debtor did this solely to forestall and delay foreclosure actions! Yes it's a strategy, but if it's done in "bad faith", it's just pure illegal.

Yes, unfortunate, but true!

[Billssuck]

We are into the fourth month of our 13 and I believe they fail due to the new lifestyle you must learn to live. I'm just starting to learn this myself (only buy what is needed not what is wanted) and scale down your way of living (less expensive birthdays and celebrations, not eating out much if at all, store brand vs. name brand, etc). It's still hard for us but I am determined to make it IF, BIG IF, me and my husband can remain employed. My job looks fine but my husband's is on unstable ground right now. If he looses his job, we'll be looking at converting to a ch7 too.