The pros and cons of Chapter 13 should be considered
Deciding to file bankruptcy can be a difficult decision and it's certainly a serious step to take. But if you've fallen behind on your mortgage, car loan and have a stack of other debts stressing you out, it can be just the answer you need. What we see is that when clients come into our office, they don't understand that there are two different types of bankruptcy – Chapter 7 and 13. Each is very different and one versus the other may give you better results. Today we'll look at the pros and cons of Chapter 13 bankruptcy.
Con – It can take up to five years to get caught up on your debts on a Chapter 13 repayment plan. It's not a “get out of debt right now” arrangement like a Chapter 7. But, depending on your circumstances, it may be a better fit for your finances.
Pro – Even though it takes longer to pay down your debts, it gives you the opportunity to catch up on back mortgage payments or car payments. If you are facing foreclosure or repossession, the chance to catch up means you can keep your home or car.
Con – You will have to devote your “disposable” income to paying your debts. This is your income less your bills and expenses. What this means is that during your repayment plan, you won't have a lot of extra money to spend as you like.
Pro – Once your repayment period is done, your disposable income will be all yours again and you will have more of it. Typically at the end of a repayment, any remaining balances on credit cards, medical bills and other unsecured debt is discharged.
Con – Filing a Chapter 13 bankruptcy will result in a negative entry on your credit report that will temporarily lower your credit score. It will take your score down between 160 to 220 points and this is a big hit in the short term.
Pro – Not being able to pay your bills also damages your credit. Letting balances build up and debts go unpaid can do as much harm to your credit score as filing bankruptcy without any upside to balance it out. And your credit score will begin to improve.
Con – You will have to surrender your credit cards. The courts will demand this as part of your repayment process. Even if you try to keep a card hidden from the bankruptcy court, once your bankruptcy is recorded on your credit, your card issuer will cancel them.
Pro – If you're like most people looking for bankruptcy relief, your credit cards are likely maxed out anyway, so losing them shouldn't be too big a deal. Also, depending on what your debt payments are on your mortgage and car, you may not have to pay off the balances.
If your financial circumstances are dire, filing Chapter 13 bankruptcy can be a fitting solution to get you out of debt and back on the road to financial stability. Contact the law offices of John T Orcutt to find out more about how Chapter 13 could benefit you.