Two out of three confirmed Chapter 13 cases fail. Those are cases that met all the tests and got the judge’s OK.
That’s a heap of people, deeply in debt, who don’t make it out of debt by using Chapter 13.
Arizona bankruptcy lawyer John Skiba has a theory about those failures:
- Lack of a lawyer
- Luck of the trustee draw
I wouldn’t argue against any of John’s culprits: none of the things he lists help
a Chapter 13 debtor.
But I have an alternate set of reasons that those trying to reorganize their debt through Chapter 13 don’t make it to the end.
#1 Overly ambitious goals
Trying to keep a doomed house has to be the foremost reason that Chapter 13 cases crater.
The mortgage payments were too large to begin with, or circumstances conspired to put the debtor deep in default.
The amount necessary to reinstate the mortgage, while continuing to make current payments, is simply too large to pull off within the five year limit of Chapter 13.
If it isn’t the house, it’s the expensive car or the time share. In short, it’s the idea that nothing else should have to change to get out of financial trouble through Chapter 13.