Deciding whether to declare bankruptcy is very difficult and should never be taken lightly. It affects your future credit, your reputation, and your self-image. But it can also improve your short-term quality of life considerably, as the calls and letters stop. In addition to deciding whether to file, you'll also want to consider which type of bankruptcy is right for you (typically either Chapter 7, Chapter 11, or Chapter 13).
Here is a list of advantages and disadvantages to consider as you decide whether Chapter 13 bankruptcy is the best option.
Pros and Cons of Chapter 13 Bankruptcy Protection: Overview
The following list of Chapter 13 bankruptcy advantages and disadvantages will help you decide the best option for your needs.
Advantages of Chapter 13
While it generally takes longer for you to pay off your debts, you'll have more time to make your payments, and Chapter 13 trustees may be flexible on the terms of your payments. You may be able to stretch out your debt payments, reduce the amounts of your payments, or give up an item of your property that you're making payments on. Also, once you successfully complete a repayment plan under Chapter 13, individual creditors can't obligate you to pay them in full.
While you're making payments under a Chapter 13 plan, you get to keep the property you're making payments on.
Although a Chapter 13 bankruptcy stays on your record for years, missed debt payments, defaults, repossessions, and lawsuits will also hurt your credit and may be more complicated to explain to a future lender than bankruptcy.
Disadvantages of Chapter 13
- You'll lose all your credit cards
- It can take up to five years for you to repay your debts under a Chapter 13 plan
- Debts must be paid out of your "disposable" income, which is whatever income you have left over after necessities (such as food, shelter, medical care) are paid. All of your extra cash is thus tied up during the entire repayment plan.
- You may still be obligated to pay some of your debts, such as a mortgage lien, even after bankruptcy proceedings are completed.
Have an Attorney Help You With the Chapter 13 Bankruptcy Process
Once you've weighed the advantages and disadvantages of Chapter 13 bankruptcy, in addition to information about Chapter 7 bankruptcy, you'll be better equipped to make a decision. But time is of the essence and you may need to consult with an expert before you decide. Get started today and speak with an experienced bankruptcy attorney near you.