Is Chapter 13 Bankruptcy Right for You?
Chapter 13 is designed to lower the payments on all of your debts with the goal of repaying most of your creditors. A plan is submitted to the court and approved if it appears you will be able to make the same payment every month which will be disbursed to service all of your debt. Chapter 7 has income limitations which is the reason some people have to consider a Chapter 13. Many people feel better about honoring all of their debts and a Chapter 13 can help people attain this personal goal.
Pros & Cons
A Chapter 13 bankruptcy is quite a substantial commitment as some of the plans last for five years. This can be seen as a negative aspect because financial instability for whatever reason is the likely cause of your contemplating bankruptcy in the first place. The thought of having to make 60 consecutive substantial payments on time can be quite daunting. Another negative aspect of Chapter 13 is you are not able to liquidate the majority of your debts as is possible with a Chapter 7. It will make some people feel better to know they are repaying their creditors rather than wiping them out.
Debt That Remains
Your Chapter 13 plan must pay certain debts in full. These debts are called “priority debts.” These debts are paid first and include such line items as child support, alimony and tax liabilities.
One of the advantages of a Chapter 13 is the possibility of cramming down secured loans to the value of the collateral. This is a way to “cure” an underperforming asset and make it financially viable to keep. The perfect example would be a home for which you owe the bank more than the fair market value.
Once you complete your repayment plan, all remaining liabilities that qualify for a discharge will be eviscerated and cleared from the liability side of your balance sheet. The same type of debt that would survive a Chapter 7 bankruptcy will also outlast the Chapter 13.