When facing financial hardship, opting for a debt reorganization can offer a way to regain stability. Among the two most common types of personal bankruptcy — Chapter 7 and Chapter 13 — the latter is suitable for individuals with a steady source of income.
While Chapter 13 can be beneficial for those who want to keep assets like their home or car, some filers may find the idea of a repayment plan to be unmanageable. Many people don’t realize that opting out of a Chapter 13 repayment plan is possible. Individuals struggling to keep up with the plan or whose circumstances have changed can explore alternatives.
What is Chapter 13 bankruptcy?
Chapter 13 is commonly perceived as a debt reorganization plan because it allows debtors to create a payment plan to repay their debts without compromising their basic needs. It’s an ideal option for individuals who earn a regular income and want to avoid foreclosure or repossession of key assets.
Even with a steady source of income, it’s crucial to acknowledge that following a Chapter 13 plan can be challenging for some individuals. Under this debt reorganization plan, individuals are restricted by a court-approved budget that may not leave room for any unexpected life events like:
- Job loss
- Illness
- Additional expenses
Therefore, the slightest inconvenience can make it difficult to stay on track. This is where the possibility of opting out or converting to other alternatives may become relevant.
Valid reasons for opting out of a Chapter 13 plan
Individuals who are struggling to stay on track with a Chapter 13 plan may wonder if they have a valid reason to opt out. A significant change in one’s financial situation is one good reason to opt out of this debt reorganization plan. Understandably, life is unpredictable, and their financial situation can shift due to a job loss or a medical emergency that may make it impossible to meet the repayment terms.
Additionally, suppose an original debt repayment plan was based on optimistic assumptions about an individual’s income and expenses. In that case, they can opt out of a Chapter 13 plan if these assumptions no longer hold true.
Opting out of a Chapter 13 plan may seem overwhelming, but it’s essential to remember that bankruptcy law is designed to provide relief—not trap individuals in unmanageable debt. Whether individuals decide to stick with their original plan or explore alternatives, the key is to act quickly and seek legal guidance to better ensure financial success at the end of the day.
