Pros and Cons of Chapter 13 Bankruptcy

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Debt is one of the most common problems today, be it student loans, mortgages, unpaid credit card bills, and so on. Sometimes some people will owe too much money than they can afford to pay back due to poor spending habits or they just really fall into hard times. Whatever reason you have for being in a lot of debt, you may have considered filing for Chapter 13 Bankruptcy. While this can help you get more time to repay your loans, filing for bankruptcy is never an easy decision to make. So before you decide, weigh the pros and cons first.

List of Pros of Chapter 13 Bankruptcy

1. It lets you have more flexibility in repaying your debt.
Your repayment period may take longer (3 to 5 years) but this gives you more time to pay back your loans. Creditors can’t force you to pay them in full. This means you can stretch out your payments, give up a property you are making payments on, or reduce the amounts of your payments.

2. It allows you to keep your property.
Chapter 13 bankruptcy stops any foreclosure proceedings and allows debtors to catch up on their mortgage payments. You also have better chances of keeping your car with the help of a restructured loan.

3. It teaches you to have better spending habits and budgeting practices.
You can attend financial education programs for individuals or groups. And you will really learn to live within your means since your payments will come from your disposable income, which is the amount left after your living expenses (shelter, food, healthcare, etc.) are deducted. This teaches you to be more disciplined and wiser with your spending.

List of Cons of Chapter 13 Bankruptcy

1. It can affect your credit scores.
If you file for a Chapter 13 bankruptcy, it can remain on your records for about 10 years. Plus, you will lose all your credit cards and it can be more difficult to get approved for future loans. On the other hand, not being able to pay off your debts could negatively affect your credit rating even more. Besides, some creditors will see your efforts to manage your loans as a good sign and could approve your application when you are able to borrow again within 1 to 3 years of filing bankruptcy. Take note though that you will most likely be given a higher interest rate.

2. It can be emotionally stressful.
The thought of being bankrupt can be depressing. Plus, some people will have to know about your status since you need to coordinate with your employer because your debt payments will be made through payroll deduction. Also, family or friends who have co-signed a loan with you must be informed. Aside from that, you know you will be financially cash-strapped for the next 3-5 years and may have to make drastic lifestyle changes.

3. It requires you to have a reliable source of income.
Since payments will be made from automatic payroll deductions, you need to make sure you have stable income for the next 3-5 years. This means you might have to put off any plans for changing jobs at the moment. You will be more pressured also to not lose your job and could lose the joy you get out of work.

Filing for bankruptcy is a difficult process, but it can be a step to gradually be debt free and ready to start a better life. Just make sure to carefully weigh the pros and cons and consult with a lawyer regarding your situation.