Chapter 13 BankruptcyThe Advantages and Disadvantages
As with most major decisions in life, there are pros and cons to filing for bankruptcy. This article specifically deals with Chapter 13 bankruptcy, as there are a number of advantages and disadvantages that you need to be aware of.
In case you don't already know, Chapter 13 bankruptcy establishes a payment plan so you can pay off your debt obligations (or at least a small part of them) to your creditors for the next three to five years.
The obvious advantage is that this allows you to catch up on your payments instead of simply filing Chapter 7 and having your financial obligations wiped out.
Why is this an important difference? Well, if you're trying to hold onto some assets, especially your house, then you will need to continue making your payments. Chapter 13 allows you to catch up on past due obligations including your mortgage payments, child support payments, and back taxes.
You may even be able to pay off your overdue income taxes without interest and penalties during a Chapter 13 filing. This is not guaranteed, but you have a good shot at this.
Did you have any friends or family members cosign a loan for you? Creating a payment plan will keep creditors from harassing your friends and family because you are committed to paying off the loan over time. In addition, you will probably only end up paying a small percentage of your original debt.
So what are the disadvantages of this plan? Well, as opposed to a straight bankruptcy (the kind that most people have in mind), you will have to be have a tight budget for the next three to five years as you carry out your commitment in the form of a payment plan. You would, of course, be wise to set a strict budget anyway, but in this case you are making a commitment to the court.
As one lawyer put it, you'll feel like you're on a leash and may have to give up your income tax refunds and any unexpected windfalls that may come your way. Also, you will have to get the court's permission to take on any new debt. If you are unable to continue making your payments for any reason, you may lose your bankruptcy protection and have the bill collectors pounding you once again. Plan carefully because two thirds of these repayment plans end up in failure!
In case you don't already know, Chapter 13 bankruptcy establishes a payment plan so you can pay off your debt obligations (or at least a small part of them) to your creditors for the next three to five years.
The obvious advantage is that this allows you to catch up on your payments instead of simply filing Chapter 7 and having your financial obligations wiped out.
Why is this an important difference? Well, if you're trying to hold onto some assets, especially your house, then you will need to continue making your payments. Chapter 13 allows you to catch up on past due obligations including your mortgage payments, child support payments, and back taxes.
You may even be able to pay off your overdue income taxes without interest and penalties during a Chapter 13 filing. This is not guaranteed, but you have a good shot at this.
Did you have any friends or family members cosign a loan for you? Creating a payment plan will keep creditors from harassing your friends and family because you are committed to paying off the loan over time. In addition, you will probably only end up paying a small percentage of your original debt.
So what are the disadvantages of this plan? Well, as opposed to a straight bankruptcy (the kind that most people have in mind), you will have to be have a tight budget for the next three to five years as you carry out your commitment in the form of a payment plan. You would, of course, be wise to set a strict budget anyway, but in this case you are making a commitment to the court.
As one lawyer put it, you'll feel like you're on a leash and may have to give up your income tax refunds and any unexpected windfalls that may come your way. Also, you will have to get the court's permission to take on any new debt. If you are unable to continue making your payments for any reason, you may lose your bankruptcy protection and have the bill collectors pounding you once again. Plan carefully because two thirds of these repayment plans end up in failure!