If you have the disposable income to repay debts, Chapter 13 may be the best way to reorganize your finances. With an approved payment plan, you can pay most or all of your debt, under the administration of a court appointed bankruptcy trustee.
By making regular, agreed payments to the trustee, your disposable income is used to repay creditors. A Chapter 13 bankruptcy will also result in an automatic stay, which prevents creditors from continuing collection proceedings. The automatic stay also applies to foreclosure proceedings. So, what is the downside to Chapter 13?
There are a number of potential disadvantages to filing Chapter 13 bankruptcy. Every case is unique and debtors are advised to consider consulting with an experienced bankruptcy lawyer. The following examples of Chapter 13 disadvantages may not apply to you. However, it is always advisable to approach bankruptcy fully informed.
Chapter 13 Timeframe
Payment plans in a Chapter 13 bankruptcy case typically are between 3-5 years. This is to give you more time to pay off your debts and get back on your feet financially. The payment plan may exhaust your disposable income, leaving you to tighten your purse string so all payments are made. If the plan payments are higher than you can afford, then your plan may need to be modified in some ways, such as surrendering property, or the court might dismiss your case.
Lack of Disposable Income
As mentioned, disposable income is used to honor the payments you agreed to as part of your Chapter 13 bankruptcy. It may leave you with little-to-no money for those little joys in life. However, you will have a roof over your head and the knowledge that you are paying off your debts if you are successful in making payments required under your payment plan.
Depending on your financial circumstances, there is a chance a Chapter 13 will show on your credit report for up to ten years after filing. You will also have to give up all your credit cards during the period you are engaged in a payment plan. The alternative is ruining your credit score the old-fashioned way, when you continue to miss payments you can’t afford.
If you aren’t already on the property ladder, getting a mortgage with a Chapter 13 on your credit report will make it difficult to find financing. There are companies who exclusively deal in providing loans to “bad risk” borrowers. The description may not sound very flattering but it could be your only option for getting a mortgage. Mortgage companies also may want to wait until a certain period of time after your Chapter 13 is complete in order to provide you with financing.
Chapter 7 Bankruptcy
If you have any plans to file for Chapter 7 bankruptcy after a Chapter 13 bankruptcy case, with limited exceptions, you will have to wait six years after the filing date of the Chapter 13 before you are eligible for a Chapter 7 discharge. However, if your Chapter 13 case lasted for 5 years, then you would not have to wait long until you are eligible for Chapter 7. Although many of the stipulations involved in a Chapter 13 bankruptcy case may seem disadvantageous, you should also consider the benefits. To learn more, you can speak to a specialist bankruptcy lawyer from H. Lehman Franklin P.C. Call today at 912-764-9616 or email us at firstname.lastname@example.org to arrange an expert consultation and guidance through the process.