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What Are the Pros and Cons of Declaring Bankruptcy under Chapter 13?

Chapter 13 bankruptcy is also known as wage-earner’s bankruptcy or reorganization bankruptcy. It is different from Chapter 7 bankruptcy in that it prevents the surrendering of assets to discharge the debt. Individuals that file for Chapter 13 bankruptcy do not have to sell any of their properties to get out of the debt burden. As a result, most people prefer declaring bankruptcy under this plan.

That being said, Chapter 13 is not for everyone. There are certain disadvantages with this plan that make it unsuitable for individuals. Here, we will discuss both the pros and cons of Chapter 13 bankruptcy that will help you in making an informed decision when filing for a bankruptcy protection.

Advantages of Filing for Chapter 13 Bankruptcy

The biggest benefit of filing for chapter 13 bankruptcy is that your personal properties are not utilized in payment of the loan amount. As long as the individual is making the payment as per the repayment plan, there is no risk to home, car, or other possessions of the individual.

Another benefit for declaring bankruptcy under this plan is that it will stop creditors from calling you constantly to repay the debt amount. Once the repayment plan is complete, you aren’t obligated to pay the amount in full. This eliminates the stress that may incur due to receiving calls from loan agents for repayment of the debt.

Filing Chapter 13 bankruptcy plan gives you additional time to make the loan payments. The trustees are usually flexible on the terms of payments. They will be willing to extend the debt payments thereby lessening the burden of loan installments. Extending the debt payment period will result in a reduced monthly installment amount.

Lastly, individuals are allowed to file for additional bankruptcy protection under Chapter 13 if required. Although, this will create a negative impact on the credit profile of the individual, it will also help in managing debt in case the original plan did not work out in easing the debt payment burden.

Disadvantages of Filing for Chapter 13 Bankruptcy

Chapter 13 bankruptcy plan dictates that the debt must be paid out of the disposable income. This is the income that is left after paying necessary expenses such as shelter, food, medical bills, and others. The disadvantage of this is that all the extra cash is tied to repayment during the entire bankruptcy plan. The duration of the plan can be as long as five years. This leaves little cash to spend on expenses such as taking a vacation, or replacing an old car, or renovating the home.

In addition, individuals that file for Chapter 13 will have difficulty in gaining additional loans for some time to come. The reason is that a Chapter 13 bankruptcy filing can remain in the credit report for up to ten years. This will make it difficult for the individual to obtain loans for payment of essential expenses even after the end of the bankruptcy plan.

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