Chapter 13 Bankruptcy Advantages & Disadvantages

An Overview of Chapter 13 Bankruptcy

If filing for bankruptcy is something that you and your family are considering, the decision cannot and should not be taken lightly. This goal of this article is to give you a better understanding of what chapter 13 bankruptcy is and to inform you of the options that are available. Hopefully, this article will prepare you prior to visiting a bankruptcy attorney.

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy can be looked at as a method of "reorganizing" your debt. People who have steady, consistent income are given the opportunity to make a payment plan to repay all or portions of their debt. The two types of debts eligible for chapter 13 are 1. Unsecured debts and 2. Secured Debts. Unsecured debts include: credit card bills, medical bills, student loans or any other debts that are not secured by collateral. Secured debts, those that are secured by collateral are: home mortgage loans, car loans, and furniture/major appliance loans. The repayment plan established can last anywhere from three to five years. Because the duration of the repayment plan is based on an individuals income, chapter 13 is also known as a "wage earner's plan".

Chapter 13 Advantages

Although filing for bankruptcy is not what anyone looks forward to, there can be many advantages to doing so. One major advantage of filing for chapter 13 is that it provides an opportunity for homeowners to stop foreclosure. During times of economical and financial stress, it is important to maintain stability. Having the opportunity to save your home can definitely provide the stability needed to continue to rebuild your finances. Another advantage that chapter 13 offers is the opportunity to reschedule the payments of secured debts (not including your mortgage) and extend them over the life of the payment plan granted. Lastly, with chapter 13 bankruptcy you are able to file for the imposition of the Automatic stay. Automatic stay will bring peace of mind to anyone who is going through the bankruptcy process because it restricts creditors from calling continuously to collect on their debts.

Chapter 13 Disadvantages

Achieving financial stability does come with a price. There are some things to consider before filing for chapter 13 bankruptcy. The long term effects of filing for chapter 13 can certainly make people think twice before moving forward with the decision to do so. Filing for chapter 13 can and will most likely stay on your credit report for about seven years. If you want to re-establish lines of credit, you must be ready to be given the highest interest rates available. Another downside of filing is that not all debts are discharged after the payment plan has been completed; some debtors may still require payments after. Lastly, all of the fees associated with filing for chapter 13 bankruptcy such as attorney's fees, court fees and a trustee's fee must be taken into consideration.

Filing for bankruptcy is a very personal decision. Before making any long term decisions that can affect your finances, get all of the information needed to make the best decision for you by referring to different sources and literature that are available.