If you’re considering bankruptcy, you need to know the pros and cons of Chapter 13 bankruptcy. Luckily, you’re at the right place. You may be asking yourself, "How long does bankruptcy stay on your credit score?" or "what are my options for bankruptcy? Both questions are great! So we are going to dive in on Chapter 13 bankruptcy and the pros and cons attached to it.
In a Chapter 13 bankruptcy, the bankruptcy court administers a debt repayment plan. The court can not only be approached by the debtor voluntarily as the creditor, nor does the government have the powers to make a debtor approach a bankruptcy court to file a Chapter 13 Bankruptcy. Also, it’s not possible for your creditor to file for Chapter 13 bankruptcy case on your behalf.
It is essential to note that Chapter 13 bankruptcy is not beneficial to everyone. As such, we’ll educate you on the pros and cons of Chapter 13 bankruptcy.
Before we begin, it's important to note that different districts and trustees handle some Chapter 13 dynamics differently. For example, a Chapter 13 Bankruptcy Florida may be handled slightly differently than Chapter 13 Bankruptcy in Missouri.
Advantages of Filing a Chapter 13 Bankruptcy Case
Chapter 13 bankruptcy has multiple benefits attached. Some of those benefits you’ll enjoy when you file for this type of bankruptcy are:
It can prevent your house from foreclosure
If you have a Chapter 13 bankruptcy case, bankruptcy can help prevent foreclosure on your home. To prevent a foreclosure without filing for Chapter 13 bankruptcy, then you’ll need to pay off your outstanding loan payment in a lump sum, qualify to have your loan payment plan modified, and refinance your mortgage. As you can see, those options are not feasible for someone who has problems paying off his/her debt.
However, the court places an automatic stay on your estate once you file for bankruptcy. This stops any foreclosure proceedings. Chapter 13 bankruptcy allows you to restructure your debt to a more convenient payment schedule.
It can assist you to get rid of a second mortgage
There's a chance that Chapter 13 bankruptcy can help you get rid of a second mortgage. The only stipulation is that what you owe on the second mortgage is less than what you owe on the first mortgage. Then, you can approach the bankruptcy court to value your second mortgage as zero.
If the bankruptcy court should approve your motion, then the balance of the second mortgage will be zero when you get a bankruptcy discharge. However, if the second mortgage is higher than the first mortgage, even if it’s by one dollar, then you can qualify to get rid of the loan.
Get Rid of Tax Debts
A bankruptcy case won't discharge your income tax debt; however, it can help you to spread the period for paying off your old debt to 3 to 5 years.
Assistance with Car Payments
Chapter 13 bankruptcy can help you prevent repossession if you’re behind on your car payment plan. The Chapter 13 plan can also help you to lower your car payment to an amount that’s below the worth of the car, provided that you’ve taken possession of the car for a minimum of 910 days before approaching the bankruptcy court to file a Chapter 13 bankruptcy. If you don’t meet that requirement, then you can extend the payment period of the loan to more than 60 months.
Assistance with Domestic Support Payments
Chapter 13 bankruptcy will not get rid of your domestic support obligations, child support, and alimony. You can, however, include it in your bankruptcy plan. This will help you catch up with past payments so that you can prevent jail time.
Note: To remain in Chapter 13 bankruptcy, you need to meet up with all future domestic support obligations.
Get rid of unsecured debts
Unsecured debts can run into thousands of debts if left unpaid, luckily, Chapter 13 bankruptcy covers unsecured debts such as medical bills, credit card debts, old utility bills, personal loans, and old rent repayments. While you may not totally get rid of the loan, you can restructure the loan in such a way that you‘ll pay only a portion of the loan.
Disadvantages of Filing a Chapter 13 Bankruptcy Case
There are numerous demerits to filing a Chapter 13 bankruptcy. One such disadvantage is that the bankruptcy attorney charges more for a chapter 13 bankruptcy than Chapter 7 bankruptcy. However, most Chapter 13 bankruptcy will include their fee in the Chapter 13 payment plan. If you decide to go with chapter 13, it is important to read: "Can I Pay Off My Chapter 13 Early" to help prepare you for the future.
Another demerit is that during the 3 – 5 year period of repaying the loan, you’re not allowed to incur debt or sell a significant portion of your asset without approaching the bankruptcy court to seek approval.
Also, the bankruptcy court may increase your Chapter 13 payment if your income increases significantly. A Chapter 13 bankruptcy can affect your chances of getting any form of credit for a long time as it is on your record that can be accessed through PACER. As such, any negative information added because you filed for bankruptcy will negatively affect your credit score.
Bankruptcy can be dependent on your location, for instance, if you are in Florida and you researching attorney fees, you would want to research: "Florida Bankruptcy Attorney Fees". If you have any additional questions, perhaps related to filing bankruptcy on medical bills, research more to find the next best steps for you.