Fail out of bankruptcy is a term used when debtors are unable to adhere to bankruptcy repayment plans. In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) which requires debtors to reorganize debts under Chapter 13. In addition to paying regular expenses, debtors must contribute approximately 60-percent of disposable income toward repayment of debts.

If debtors fail out of bankruptcy, creditors can petition the court requesting dismissal of the bankruptcy. A judge can either allow the debtor to file Chapter 7 and discharge debts or dismiss the bankruptcy. When dismissal occurs, creditors can proceed with collection action, including foreclosure.

Many homeowners file for bankruptcy protection to avoid foreclosure. Chapter 13 bankruptcy allows borrowers to stay in their home as long as they are able to pay their regular mortgage payment and Chapter 13 payments.

Most people fail to realize they must pay mortgage arrearages and maintain regular mortgage payments throughout the bankruptcy process. Borrowers already struggling to make ends meet are rarely able to pay higher payments to prevent foreclosure.

When debtors fail out of bankruptcy, mortgage lenders can commence with the foreclosure at the stage they left off when the bankruptcy petition was filed. For example, if foreclosure was scheduled within three weeks of filing bankruptcy, the bank can foreclose on the property within three weeks of the debtor missing a Chapter 13 payment.

Once bankruptcy petitions are filed, an 'automatic stay' goes into effect; protecting debtors from creditor collection actions. Creditors are prohibited from initiating or continuing lawsuits, wage garnishment, sending debt collection notices, repossession or foreclosure. The automatic stay remains in effect as long as debtors adhere to bankruptcy repayment plans.

If debtors are unable to make chapter 13 payments on time they should immediately contact their bankruptcy lawyer. The attorney can contact the bankruptcy Trustee and attempt to obtain a payment extension. If the debtor is experiencing a temporary financial setback, most creditors are open to negotiations in order to help the debtor avoid failing out of bankruptcy.

Chapter 13 bankruptcy can offer financial relief, but carries significant risk if debtors are unable to repay debts. Prior to making the decision to file for bankruptcy protection, debtors should conduct research on bankruptcy alternatives such as debt consolidation, debt settlement or credit counseling.

Personal bankruptcy remains on credit reports for up to ten years. This black mark can prevent consumers from obtaining any type of credit. Those fortunate enough to obtain credit cards will most likely be forced to pay considerably higher interest rates.

Bankruptcy can adversely affect other aspects of life. Utility companies can charge higher security deposits. Landlords can request additional rent or charge higher deposits. Many banks will not allow consumers with bankruptcy filings to open checking or savings accounts. Insurance companies can charge higher rates to "high-risk" clients.

Take time to understand the process of bankruptcy and the ramifications associated. While it can be tempting to file bankruptcy to get creditors off your back, the long term effect can be devastating.