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I was speaking with a bankruptcy attorney today about the step-up payments, where your plan payment may increase if you paid off a loan or completed a 401 (k) loan repayment.
In addition, I have spoken to too many people who have had a negative Chapter 13 bankruptcy experience to the extent of ruin and are now considering the
pros and cons of a Chapter 13 bankruptcy dismissal. This article is for those who have not yet filed or have recently filed Chapter 13 bankruptcy and wonder what may happen.
I also want to mention that Chapter 13 bankruptcy can be a great option to stop foreclosure, catch up on vehicle payments, and get debt relief. If you are behind on payments to your house or car, you may want to take our
free Chapter 13 calculator to estimate your Chapter 13 monthly payments. If that's not you, let's move on. I'll start with some things that may go wrong in Chapter 13 that some could say could ruin my life, and then one option to consider if you cannot get a loan and need to do something.
4 Reasons Chapter 13 May "Ruin Your Life"
Now, Chapter 13 may not ruin anyone's life, but let's look at the reasons that may increase the stress in your life.
1. Chapter 13 Payment Too High
Many people enter Chapter 13 bankruptcy hoping for a manageable payment that will help them catch up on past-due debts while keeping their assets. However, the court may calculate payments based on disposable income, not what feels affordable. This often results in monthly payments that are equal to or even higher than the combined minimum payments the filer was struggling with in the first place.
For example, let's say that the
local standards for housing in your area show rent is $2,000 that gets added to the disposable income calculation, but your rent is $5,000. The Chapter 13 disposable income calculation may think that you have much more disposable income than you do.
Filers are left with little money for food, gas, car repairs, or unexpected expenses, forcing them into a bare-bones lifestyle for 3 to 5 years, which can feel suffocating and impossible to sustain.
2. Increased Payment In The Plan
Even if the initial payment seems doable, payments can increase after confirmation. This can happen if the trustee reassesses income and expenses, discovers new assets, or if a missed mortgage payment forces the home into the bankruptcy plan. If the filer’s income increases (even slightly) the trustee may demand higher payments to capture more for creditors.
This unpredictability, combined with the already tight budget, can leave many people feeling constantly on edge, knowing that their financial situation could worsen.
3. Inflexibility of the Plan
Chapter 13 plans are notoriously rigid, with very little flexibility for life changes. If you lose your job, have a medical emergency, or face any unexpected expense, the court is not quick to adjust your payments. Modifying a plan can be time-consuming, expensive, and uncertain.
This can leave filers in a constant state of anxiety, afraid that even a minor disruption could collapse the entire plan, forcing them to either convert to Chapter 7 (if eligible) or lose everything they were trying to protect.
4. Choosing the "Wrong" Bankruptcy Attorney
I spoke with a gal years ago who had many challenges with her Chapter 13 bankruptcy attorney. She alleged that the attorney kept modifying her plan and continued to charge her for those modifications, even though she stated she could not afford to live with those charges.
In addition, some attorneys get the payments upfront in the Chapter 13 plan but no longer get revenue from the case, so it can be difficult to prioritize future asks if they are trying to run their business and get new clients. This is, unfortunately, the nature of Chapter 13 bankruptcy, so it may be helpful to read reviews of the experience individuals have with their Chapter 13 attorney.
One Unique Option To Consider
Many people I speak with cannot get a debt consolidation loan and are comparing Chapter 13 bankruptcy to a debt consolidation program where your accounts fall behind and you can be sued.
Many people I speak with have never heard of non-profit credit counseling. Nonprofit credit counseling is another type of debt consolidation where your accounts do not fall behind, you get debt relief, you are NOT sued, your credit score could go up, and your interest rates on your credit cards could plummet.
Sounds too good to be true?
It's not.
We also built the free credit counseling calculator below to help estimate your eligibility and monthly payment. You can then compare your monthly obligations to this estimate to see if you would get significant debt relief.
Reddit Horror Stories
Here are summaries of 3 stories I found on Reddit. I added the link for you to read yourself in the header.
In August 2022, a woman and her fiancé purchased a home together. While her fiancé was the only one on the mortgage, both were listed on the deed. By mid-2023, her business collapsed, leaving her with around $90,000 in unsecured credit card and loan debt. Although her auto loan was current, she was struggling to keep up with her credit card payments. Out of desperation, she consulted with multiple bankruptcy attorneys, who all advised that she was ineligible for Chapter 7 due to the equity in their home, equity that came from a large down payment using proceeds from the sale of their previous home.
Reluctantly, she filed for Chapter 13 bankruptcy and is now about six months into the repayment plan. With all the restrictions, financial scrutiny, and lack of flexibility, she feels completely trapped. Adding to her stress, she’s now a stay-at-home mom expecting a baby, and her car — which would have been paid off soon — is now tied up in the 5-year Chapter 13 plan. She deeply regrets insisting that her name be placed on the deed, recognizing that had she not been listed, she likely could have qualified for Chapter 7 and avoided years of financial hardship.
A couple initially believed Chapter 13 bankruptcy would solve their financial troubles. At first, they felt hopeful — but as time went on, the process became increasingly complicated and their required payments continued to rise. Although they originally kept their home out of the bankruptcy case, they missed one mortgage payment, which triggered the court to pull their home into the repayment plan. As a result, their monthly payment to the bankruptcy trustee has ballooned to nearly $3,500 per month.
Now, they’re uncertain about their options. They wonder whether they should try to negotiate directly with their creditors and exit Chapter 13 altogether, or whether they should consult their attorney, though they fear the lawyer’s advice might be influenced by a desire to maximize legal fees.
When they first filed for Chapter 13, they were three mortgage payments behind, and one of their vehicles was also included in the plan. They’re now considering whether they can work out a new agreement with their mortgage lender to remove the house from the bankruptcy plan entirely.
Reflecting on their situation, they blame years of financial mistakes for landing them in this difficult position — and they leave others with a stark warning: “Do not be like us, kids!”
A high-income earner filed for Chapter 13 bankruptcy in August after inheriting debt from co-signing on their late father’s loans, in addition to their own. Their initial trustee payment was $2,700, but due to their income and significant home equity, it’s now being raised to $3,400 per month — a payment they say leaves no money for food, gas, or insurance after basic bills.
Frustrated, they note this new payment is actually higher than their original minimum payments, making bankruptcy feel more suffocating, not less. They’re considering getting a second opinion from another lawyer but aren’t sure it will help. They also worry about the consequences of dismissing the case, especially since the bankruptcy already shows on their credit report.
Should You File Chapter 13 Bankruptcy?
Filing Chapter 13 bankruptcy is ultimately your decision, and you understand your finances best.
Ascend built a reputable bankruptcy attorney network across the United States with local attorneys through. If you want a free Chapter 13 attorney consultation, please text or call us at 833-272-3631. Our attorney's have an average rating of 4.92 on Google from a study we did years ago.
If you would like to estimate your Chapter 13 plan payment, please consider taking our
free Chapter 13 calculator. The calculator is based specifically on the Chapter 13 bankruptcy forms and does its best to estimate your monthly payment and duration of your Chapter 13 plan.
