Chapter 13 bankruptcy offers individuals and families the opportunity to restructure their debts to gain better control of their finances. Despite its wide recognition, there are many misconceptions about this path that can discourage people from considering it as a viable solution.
The more you understand about the most common misconceptions, the easier it is to determine if Chapter 13 could help you.
You will lose everything
One of the most common misconceptions about bankruptcy is that you lose everything you own in the process. With Chapter 13 bankruptcy, your debts get restructured into a new repayment plan. That means you keep your home, car and other assets.
It ruins your credit for life
Although bankruptcy does affect your credit when you file, that effect does not last forever. A Chapter 13 bankruptcy stays on your credit report for seven years. Its effect on your credit score diminishes with time and you can work to rebuild your credit over that period as well.
All of your debts get forgiven
Chapter 13 bankruptcy does not eliminate your debts in the same way that Chapter 7 will. Instead, your debts get restructured into a new payment plan. That means you might pay some of them in full over your repayment schedule. Not only that, but certain debts are ineligible for bankruptcy, including child support and most student loans.
According to the U.S. Federal Court, Chapter 13 bankruptcy accounted for approximately 40% of all bankruptcy cases in 2022, second only to Chapter 7 filings. When you find yourself overwhelmed by your debts, consider whether bankruptcy is right for you.