The effects of this pandemic have taken a toll on everyone. Deciding to declare bankruptcy may be difficult. However, bankruptcy protection is a right available to all and helps you get a fresh start. In deciding whether to file bankruptcy, it’s best to know the different types of bankruptcy available. In this article, we’ll talk about Chapter 13 bankruptcy, its advantages, and its disadvantages. 

What happens under Chapter 13?

A Chapter 13 bankruptcy is also known as a wage earner’s plan. Under this chapter, debtors propose a repayment plan to pay their debts to creditors through installments over three to five years. If your current monthly income is below the state median income, you would qualify for three years. If your monthly income is greater, you would get five years for your repayment plan.

When you file for bankruptcy, a court order called automatic stay stops most lawsuits and collection efforts as a result of your debts. Also during your repayment period, the law forbids creditors from starting or continuing collection efforts.

In general, people prefer to file a Chapter 7 bankruptcy, also known as liquidation bankruptcy. Their income must be below a certain threshold as determined by the bankruptcy means test. A debtor who does not qualify for Chapter 7 would be forced into filing under Chapter 13. 

Pros

Save your home from foreclosure

Filing bankruptcy under Chapter 13 lets you keep your home and catch up with your mortgage with the help of bankruptcy courts.

Help with the second mortgage

Filing for Chapter 13 There is a way to get rid of your second mortgage. If your home is worth less than what you owed on the first mortgage, it can count as unsecured debt and can get discharged. 

Eliminate unsecured debt

These include credit card debt, medical bills, old utility bills, old rent payments, and personal loans. If you pay a small amount of these debts, you may be able to eliminate them. 

Help with tax debt

Tax debt is usually not dischargeable in a bankruptcy case. If some of your income tax debt meets certain requirements, you might be able to get rid of tax debt for less than you owe the government.

Keep your car

Chapter 13 can help you avoid repossession. Chapter 13 also lets you stretch payments on your car, which can lower it to an affordable amount. 

Help with domestic support payments

With chapter 13, you can reorganize your child support, alimony, and domestic support obligations to avoid jail time and other court cases

Cons

Length of time

A case often lasts 3-5 years before it’s paid in full. This can make people hesitant and opt to negotiate a debt settlement, debt consolidation, or other forms of debt relief as an alternative to bankruptcy.

Low payment flexibility

You must use all your disposable income to pay off your debt. If your earnings increase, so does your payment plant. You can’t incur any new debt without the bankruptcy court’s approval. 

Negative credit impact

You could lose an estimate of 100-200 points. However, it’s only on your record for 7 years compared to 10 years after bankruptcy under Chapter 7. 

At E. Orum Young, our firm sees to it that creditor harassment stops immediately when you file your bankruptcy with us. We are proud members of the National Association of Consumer Bankruptcy Attorneys and have served clients throughout Northeast Louisiana for over 35 years. With over 20,000 bankruptcy filings, we have processed more of these types of cases than any other law firm in our area.   Call us today at (318) 450-3192 for your free case evaluation and find a path to financial freedom.