Chicago chapter 13 bankruptcy lawyer

Benefits & Drawbacks Of Chapter 13 Bankruptcy

Chapter 13 Bankruptcy

Filing for Chapter 13 bankruptcy can be a viable solution for individuals facing overwhelming debt, but it comes with both benefits and drawbacks. Understanding these can help you make an informed decision about whether this type of bankruptcy is the right choice for your financial situation.

Benefits Of Chapter 13 Bankruptcy

  1. Debt Repayment Plan:

Chapter 13 bankruptcy allows you to create a structured repayment plan to pay off your debts over three to five years. This plan consolidates your debts into a single monthly payment, making it easier to manage your finances. It provides a clear path to becoming debt-free by the end of the repayment period.

  1. Retaining Assets:

Unlike Chapter 7 bankruptcy, which involves liquidating assets to pay off debts, Chapter 13 lets you keep your property, including your home and car. As long as you adhere to the repayment plan, you can retain your assets and avoid foreclosure or repossession.

  1. Automatic Stay:

When you file for Chapter 13 bankruptcy, an automatic stay goes into effect immediately. This legal provision halts all collection activities, including phone calls, wage garnishments, and lawsuits. The automatic stay provides you with temporary relief from creditors, giving you time to focus on your repayment plan without the stress of constant harassment.

  1. Debt Discharge:

At the end of the repayment plan, any remaining unsecured debts, such as credit card balances and medical bills, may be discharged. This means you are no longer legally obligated to pay these debts, providing a fresh financial start.

  1. Lower Monthly Payments:

Chapter 13 bankruptcy can reduce your monthly debt payments by extending the repayment period and possibly lowering interest rates. This can make your financial obligations more manageable and help you stay current on essential expenses like mortgage payments.

Drawbacks Of Chapter 13 Bankruptcy

  1. Lengthy Process:

The repayment plan in Chapter 13 bankruptcy lasts three to five years, which is a significant commitment. During this time, you must adhere strictly to the repayment schedule, and any missed payments could jeopardize the plan and result in the dismissal of your case.

  1. Impact on Credit Score:

Filing for bankruptcy has a substantial impact on your credit score. A Chapter 13 bankruptcy remains on your credit report for seven years from the filing date, making it more difficult to obtain new credit or loans. Rebuilding your credit will take time and diligent financial management.

  1. Limited Access to New Credit:

While you are under a Chapter 13 repayment plan, your access to new credit will be restricted. Obtaining new credit requires court approval, which can be a lengthy and uncertain process. This limitation can be challenging if you encounter unexpected expenses or emergencies.

  1. Living on a Budget:

Chapter 13 bankruptcy requires strict adherence to a budget. The court will scrutinize your income and expenses to ensure you can make the required payments. This can mean living with tight financial constraints for the duration of the repayment plan, which can be difficult for some individuals.

  1. Potential for Plan Failure:

If you cannot keep up with the repayment plan due to job loss, medical emergencies, or other financial setbacks, your Chapter 13 case could be dismissed. This would leave you liable for the full amount of your debts and could result in the loss of any assets you were trying to protect.

Contact Our Firm Today For Assistance

Chapter 13 bankruptcy offers significant benefits, including the ability to retain assets, consolidate debts into a manageable repayment plan, and ultimately discharge remaining unsecured debts. However, it also comes with notable drawbacks, such as the long duration of the repayment plan, the impact on your credit score, and the stringent budgetary restrictions. Weighing these benefits and drawbacks carefully can help you determine if Chapter 13 bankruptcy is the right path for achieving financial stability and relief from overwhelming debt. Contact a Chicago chapter 13 bankruptcy lawyer from Therman Law Offices, LTD today to learn more and to get assistance with bankruptcy.

Scroll to Top