The Pros and Cons of a Chapter 13 Bankruptcy

Individuals who are willing to pay their debts within 3-5 years qualify for the Chapter 13 bankruptcy. This chapter is crucial as it is helpful for individuals that want to retain some or all of their assets. This form of bankruptcy in some cases offers a better solution over the conventional form of bankruptcy as listed out by the Chapter 7 bankruptcy. The Chapter 7 bankruptcy can sometimes strip the debtor of his assets. This bankruptcy can be declared by individuals who have a limited regular income and can show ability to pay back a portion of their debts over time.

Understanding the negative aspects of this type of bankruptcy will explain the flexibility of the Chapter 13 bankruptcy. It is seen that a person who has filed for this form of bankruptcy would see it on their credit reports for a period of 7 years. Furthermore, it will be difficult to borrow large sums of money in the following years, as most of the creditors will question the worthiness of repayment of the debts. Besides this, one of the most persistent issues that surround the Chapter 13 bankruptcy is that it puts a filer on a strict and restricted budget thus, cutting off any unusual expenses that a person may have interest in. The Chapter 13 bankruptcy
also does not include all debts under its influence, which means that a person with a variant case cannot file for this bankruptcy. Although, Chapter 13 is a feasible solution for filing bankruptcy, it should be understood that it limits the debt amount that a debtor can discharge.

On the contrary, this form also has its benefits in that it avoids the foreclosure of homes, as well as protection of the co-signers come under this chapter. Besides this, a debtor can still have their non-exempt as well as the exempt properties. The payment terms of most of the debts can get extended as per the rules under this bankruptcy form. Given these benefits, the Chapter 13 bankruptcy does seem to have its plus points that can be made use of judiciously.

This chapter is sometimes referred to as a repayment plan or a reorganization plan. To fully understand the depth and scope of this chapter of the US bankruptcy code, one should consult with a licensed bankruptcy attorney. Only bankruptcy lawyers can guide you through this stressful process.


Jay King is owner of BankruptcyIntro.com. We've all heard of large companies filing for bankruptcy or "going bankrupt" and most of us would think that particular company must be in trouble.