You may have seen statistics about the number of bankruptcy cases that are “successfully completed” and wondered what that means. When you see that type of data, it generally refers to a specific outcome in the bankruptcy court.
In a Chapter 7 bankruptcy case, the measure of success is generally getting a discharge. The bankruptcy discharge eliminates the obligation to pay many unsecured debts, reducing or wiping out accounts that have been hanging over the bankruptcy petitioner’s head. In a Chapter 13 case, success generally means completion of the bankruptcy repayment plan, which may or may not be accompanied by a discharge of some remaining unsecured debt.
But, like many statistics, bankruptcy success rates standing alone don’t mean much.
Factors Impacting Successful Completion of a Bankruptcy Case
According to the U.S. Bankruptcy Courts, a discharge is granted in 99% of Chapter 7 cases “that are not dismissed or converted.” The 99% figure sounds great, but the qualification is a big one. However, most Chapter 7 dismissals are avoidable. Some examples include:
- With limited exceptions, a Chapter 7 case will be dismissed if it is filed without a certificate of credit counseling completion
- A Chapter 7 case may be dismissed if complete schedule aren’t filed, or if the trustee requests additional information or documentation and the debtor doesn’t provide the materials
- A Chapter 7 case may be dismissed for fraud, or failure to comply with an order of the court
In other words, it’s usually within the bankruptcy petitioner’s power to avoid dismissal. Data shows that one of the greatest advantages a bankruptcy filer can have is representation by a bankruptcy attorney. One study in another state revealed that debtors in more than 94% of Chapter 7 cases filed by a bankruptcy attorney received discharges, while just 55.6% of those filing without assistance received a discharge. Similarly, 36% of petitions filed without an attorney were dismissed for failure to provide complete information, compared with 2.2% of petitions filed by attorneys. Often a person that has filed a petition without an attorney or with the help of a bankruptcy petition preparer may be missing essential documents and may not provide the necessary information that would lead to a successful discharge.
A Chapter 13 case takes three to five years to complete and requires regular monthly payments, so it’s no surprise the success rate for these cases is lower. In Alabama, about 44% of Chapter 13 cases concluded successfully in 2019. That seems to be a discouraging number but, again, many factors are within the bankruptcy filer’s control.
For example, more than 35% of the cases in which plans were successfully completed required at least one modification. But, many people in Chapter 13 cases drop the ball when something interrupts their lives, missing payments and risking dismissal instead of returning to court to seek a modification or conversion. More than 70% of the Chapter 13 cases dismissed in 2019 were dismissed for failure to make plan payments.
In short, a successful Chapter 13 plan often requires management, from making timely plan payments to reporting income changes to the trustee and requesting a suspension of plan payments or a modification if circumstances change.
For many reasons, the impact of working with an experienced bankruptcy attorney versus trying to go it alone is even greater in a Chapter 13 case. An analysis published in the Journal of the American Bankruptcy Institute showed that just 2.3% of more than 10,000 cases Chapter 13 petitioners filed on their own were successfully completed.
Bankruptcy is the Beginning
You’ve received a Chapter 7 discharge. Or, you’ve completed a Chapter 13 plan and received a discharge of some remaining unsecured debt. Your bankruptcy case is over. Statistically, it goes in the “win” column–you’ve achieved successful completion.
That success is more than a technicality. You’ve freed yourself of debt that was likely creating stress, interfering with your ability to invest in the areas of life that are most important to you, and perhaps even threatening essentials like your home or your car. Take a moment to relish that. But then, remember that the successful completion of your bankruptcy case is just the first step.
Bankruptcy can be life-changing. But, how much impact it has on your life depends in large part on what you do next. To give yourself the best opportunity to make the most of the re-set bankruptcy offers, start preparing for the future as soon as you file–or even before.
That starts with understanding how you got into a financial bind and recognizing any bad habits you picked up along the way. Even if your financial crisis was caused by something entirely outside your control, like a serious illness, it probably impacted the way you handle money. Juggling, putting out the most urgent fires and living paycheck-to-paycheck can begin to feel normal, even while it’s creating stress.
Post-bankruptcy, you need a plan. Take the lessons learned in your financial management course to heart. Add up your income and expenses and make sure the budget balances. Determine how much you can afford to set aside each week or month and get that habit ingrained. Decide how you want to handle credit after bankruptcy–some people want to steer clear, but others want to slowly rebuild credit while keeping balances low.
The specifics differ, depending on your income, your priorities, your age, whether you have a family and many other factors. The importance of acting deliberately does not. Your mindset is of equal importance. After you are discharged, the bankruptcy process is now a part of your past. It’s vital to know that a good and positive future lies ahead, and you can rebuild with confidence and success!
Start Strong with an Experienced Bankruptcy Attorney
An experienced local bankruptcy lawyer can offer many advantages, from providing the information you need to choose the right path forward to ensuring that technical requirements are fulfilled, deadlines are met, and explaining your options if you run into trouble.
The attorneys at Bond & Botes have been helping people get out of debt for decades. We know how important accurate information is, so we offer free consultations in Alabama, Mississippi and Tennessee. We’ve adapted our process to include remote consultations and full representation so you don’t have to leave your home. You can schedule a call or video conference by calling 877-581-3396 or filling out the contact form on this page.
Suzanne Shinn is a shareholder of several of the Bond & Botes Law Offices throughout Alabama and Mississippi. She holds a Bachelor of Science from the University of Alabama, Birmingham, and a Juris Doctorate from the Birmingham School of Law. She joined the Bond & Botes team in 1992 as its first associate attorney and has been helping clients navigate the bankruptcy process ever since. Read her full bio here.