Chapter 13 bankruptcy pros and cons

Filing for Chapter 13 bankruptcy is a way to restructure your financial health. If you have disposable incomes but too many debts, Chapter 13 can provide a personal reorganization with a court-approved plan. As with any financial decision, there are some pros and cons to weigh if you are considering filing.

Let’s start with the timing issue. It can take up to five years to repay your debts during a Chapter 13 bankruptcy, so that could be seen as a con. However, you have more time to pay off your debts, and once every monthly payment is made, you will be debt-free. Definite pro!

Another big positive is that, unlike liquidation from Chapter 7, a Chapter 13 bankruptcy allows you to keep the property on which you’re paying debt. You will not undergo a foreclosure or a short sale, so you don’t need to worry about where you’re going to be physically. However, your debts must be paid from “disposable income.” Your priorities, besides the debt, are food and shelter, so don’t go out and purchase a new car while you’re bankrupt. You will also not be able to get a mortgage while you’re bankrupt, so wherever you are, renting an apartment or owning a house, you’re stuck, and you’d better get used to it.

You might see this next part as a pro or a con. However you see it, you will lose all of your credit cards. You won’t be able to obtain a new line of credit for at least a year. If overcharging on multiple credit cards got you in the situation, then this could be a positive aspect.

Some debts are not eligible under Chapter 13. Student loans, alimony, and child support cannot be removed after filing for bankruptcy, so you will still have to deal with these after you become debt-free from your other personal debts.

If you have undergone a Chapter 13 bankruptcy, you cannot file for a Chapter 7 bankruptcy for six years. The six-year rule does not apply only if you have repaid over 70% of the debts involved in your Chapter 13. A Chapter 13 bankruptcy involves restructuring of your spending plan, so it would behoove you to prevent any type of bankruptcy in the future.

Finally, you probably already know that your credit score will take a hit with bankruptcy. A Chapter 13 bankruptcy can appear on your credit report as long as 10 years, and we all know life is short. A final pro to end on is legal protection. Once you file for bankruptcy, none of your lenders can take you to court to collect the debt. These are the main things to consider before you look to Chapter 13, Title 11 of the United States Code.

David Pilley

David Pilley

David Pilley is a May 2010 graduate of the University of North Carolina at Chapel Hill, with a B.A. in communication studies and a creative writing minor. He is a native of Raleigh, North Carolina.

He played clarinet for the Marching Tar Heels in 2005 and 2006. He also volunteered for STV, the student-run television station at UNC-Chapel Hill, in the spring of 2010. He shot video, wrote scripts, and acted for “Off the Cuff,” UNC’s longest running sketch comedy show. He has the rare distinction of having lived in a dorm all four years of his undergraduate college career. He was also on Franklin Street on the night of April 4, 2009. His future plans are to pursue a master’s degree in journalism and to one day work for the media as a sports journalist or broadcaster.

Being one of eight children, David realizes finance is an important topic to everyone, regardless of his/her knowledge of the subject. His interests are in personal finance, budgeting, and savings.

In his spare time, David enjoys watching sports and standup comedy, as well as doing crossword puzzles and writing in the first person. He also thoroughly enjoys trivia and, one day, hopes to participate on the game show Jeopardy!, where he will try to break Ken Jennings’ 74-game win streak.
David Pilley

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