Chapter 13 Bankruptcy

The second form of bankruptcy is called a Chapter 13 bankruptcy. This is what the courts and creditors like to call a “reorganization” of your debt. In a Chapter 13 bankruptcy, you agree to pay off all of your debts through a court appointed trustee, over a five (5) year period. Are there advantages to filing a Chapter 13 bankruptcy over a Chapter 7 bankruptcy?

There are some advantages. For example:

  • Like a Chapter 7 bankruptcy, all collections from creditors or collection agencies will cease.
  • You will only need to make one monthly payment to the court trustee.
  • You will have the ability to pay back debts you have fallen behind on, such as student loans, car or mortgage payments, or any taxes owed to the IRS.

What are the disadvantages of a Chapter 13 bankruptcy?

Like a Chapter 7 bankruptcy, a Chapter 13 bankruptcy stays on your credit report for seven (7) years. As a result, all of things we discussed, such as higher insurance premiums, job applications and filing a new credit application will be subject to the same derogatory remarks.

In addition, with a Chapter 13 bankruptcy:

  • You are required to pay back most of what you originally owed to the creditors, plus interest and whatever monthly fee the court trustee charges.
  • Paying off all of your debt over a five (5) year period, without any negotiation being done on your behalf may prove impossible for you to complete.
  • Employers are still able to legally disqualify your job application due to the bankruptcy.
  • Records show that over 50% of all Chapter 13 bankruptcies filed are never completed by the participant.