Chapter 13 Bankruptcy
If you have amassed large amounts of consumer debt and are having great difficulty paying your minimum monthly expenses and your financial situation continues its downward spiral, you many have no other choice than to consider bankruptcy. Although filing for personal bankruptcy is not always the best choice it has continued to grow in popularity over the last few years. Let's take a closer look at one alternative called a chapter 13 bankruptcy.
A chapter 13 bankruptcy is used when an individual cannot meet his financial obligations, but he wishes to repay his creditors. In order to qualify an individual must owe less than $250,000 of unsecured debt. A court will review your financial records and establish an affordable monthly repayment plan that will last anywhere from 3 to 5 years. Creditor payments will be issued from this monthly total. At the end of that time period the remainder of an individual's dischargeable debts are released.
One advantage to this type of bankruptcy is the length of time reported to credit agencies. The length of time for a chapter 13 is generally 7 years versus a typical 10 years for chapter 7. Three years is a big advantage in re-establishing your credit. Until your report is completely clear, you will face some obstacles when applying for credit, however, you will not be rated as poorly as an individual filing a chapter 7. Other advantages are that it protects an individual from creditors and allows an individual to honor his commitments and make payment arrangements. You will not lose his house, his car, or his personal property.
Some of the disadvantages include the penalty for missed payments. If an individual misses one of the chapter 13 payments the court can dismiss their case. Although it is an advantage compared to a chapter 7 bankruptcy it is a disadvantage when compared to other alternatives such as debt negotiation through a consumer counseling service.
Careful consideration should be given before determining the best way to handle excessive debt. The option of bankruptcy should never be chosen without exploring all options and understanding the complete ramifications. If the decision is made to file for bankruptcy then chapter 7 may be your best alternative.