The Unaffordable Bankruptcy

For many people Bankruptcy can be a path to salvation, but sometimes there are situations or people with particular financial goals in mind for whom bankruptcy may not work. For example, a situation may occur where the debtor has an asset that he wishes to keep but which would be sold in a chapter 7 case. Because he wants to keep the asset, he would have to file Chapter 13. Whatever the value of the non-exempt asset, the debtor could expect to have to pay over the life of a Chapter 13 plan. If the debtor cannot afford this extra money, then the plan will not be accepted. Either the debtor can surrender the asset or have to reconsider a bankruptcy filing.

Another common scenario is where the debtor owes a taxing authority a substantial amount of money and this debt is entitled to priority. Priority debts generally must be paid in full over the life of a chapter 13 plan. If the debtor cannot afford to pay this claim on top of his other claims, the plan will not be accepted.

Sometimes a debtor may be trying to keep an asset that is subject to a creditor’s lien and there is a huge arrearage. In the Chapter 13 plan, the debtor will need to make normal monthly payments and pay off the full amount of the arrearage. If the combination is too much for a debtor, the plan will not be accepted.

These are typical situations that arise where it seems to the debtor as if he cannot afford bankruptcy. Bankruptcy may still be an option but the debtor may have to re-evaluate what is important to him or her.

If you have questions about foreclosure, loan modification, bankruptcy, or other alternatives, please feel
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