Filing for Chapter 13 bankruptcy can provide much-needed relief if you are overwhelmed with debt and struggling to keep up with payments. Under Chapter 13, you repay a portion or all of your debt, allowing you to keep assets like your home or car. While this type of bankruptcy comes with unique advantages, it also does not fit into every situation. Before deciding what is right for you, understand what it is and consider these key Chapter 13 pros and cons.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy, also known as a wage earner’s plan, allows individuals with regular income to repay all or a portion of their debts over a 3 to 5-year period. Under Chapter 13, the filer works with their attorney to come up with a court-approved repayment plan showing how they will pay something back to creditors over time. Collection efforts against the filer are prohibited during this repayment period. By stretching out, modifying, or reducing payments, Chapter 13 helps make debt more manageable for financially distressed individuals while allowing them the opportunity to save assets like their homes from foreclosure and cars from repossession. The money repaid goes primarily toward important priority debts like mortgages, car loans, taxes, and support obligations first. The remainder pays off a fraction of lower-priority debts such as credit cards, medical bills, and utilities. Ultimately, balances on most types of unsecured debts are discharged at the end of a plan.
Pros of Filing Chapter 13 Bankruptcy
1. Keep Valuable Assets: The number one advantage of Chapter 13 is being able to keep assets, especially expensive ones you rely on like your home or vehicle. As long as you keep up with repayment plan payments, you can avoid repossession or foreclosure. This buys time to catch up if you’ve fallen behind.
2. Lower Monthly Payments: By stretching out repayment over several years, monthly payments often decrease, providing financial relief. Your bankruptcy lawyer can negotiate lower balances or interest rates as well. Consolidating multiple debts into one payment is easier, too.
3. Rebuild Credit: Although bankruptcy damages credit, entering a structured repayment plan shows responsibility. And Chapter 13 only stays on your report for seven years compared to 10 years for Chapter 7. Rebuilding credit during and after Chapter 13 is possible over time.
4. Multiple Filings Allowed: If you complete payments but still owe debt not covered in a Chapter 13 bankruptcy, you can file again. While multiple filings appear on your report, the option exists if problems persist. You can file Chapter 13 repeatedly.
Cons of Filing Chapter 13 Bankruptcy
1. Repayment Plan Difficulties: The 3-5-year repayment plan seems ideal but can prove challenging. Even missing payments risks dismissal, leaving no bankruptcy protection. Job loss, medical issues, and added expenses all strain the plan.
2. Certain Debts Remain: Common protected debts like most student loans, alimony, and child support can’t be discharged in Chapter 13. (These debts are also not discharged in a Chapter 7 case). Also, any debts incurred after filing aren’t covered, either. These obligations continue even after repayment plan completion.
4. Credit Damage: All bankruptcies hurt credit scores. While Chapter 13 looks better than Chapter 7 filings, you still can expect loan and credit denial, higher interest rates, and the necessity to work on credit rebuilding.
Is Chapter 13 Bankruptcy Right for You? Ask the Experienced Bankruptcy Lawyers at Sawin & Shea, LLC
The choice between Chapter 7 and Chapter 13 bankruptcy depends on your unique situation. Meeting with a bankruptcy attorney at the initial consultation to review options is invaluable. If you have steady income to handle payments and want to keep assets, Chapter 13 may be the right answer for you. Evaluate priorities, weigh the pros and cons of filing Chapter 13, and seek legal advice to determine if it aligns with your debt relief needs.
Fortunately, you don’t have to go through the process alone. The Chapter 13 attorneys at Sawin & Shea, LLC can help you navigate the complexities of filing. Our team will work with you to find your best option, whether it means choosing Chapter 13, Chapter 7, or another option. Contact our lawyers today at 317-759-1483, or you can schedule a FREE consultation online here.