When you’re deep in debt, your best way out of the hole can be filing for bankruptcy. 


After you make that decision, you then need to determine which type of bankruptcy you will file for. The most common options for individuals are Chapter 7 and Chapter 13 bankruptcy.


Chapter 7 is known as liquidation bankruptcy where you may need to sell off your assets to repay some of your debt. However, after the bankruptcy process, your remaining debts will be discharged – meaning you will not need to repay them.


In contrast, Chapter 13 requires you to set up a repayment plan to pay back some or all of your debts. 


Typically, your repayment plan will last 3 to 5 years. Once the plan is complete, the remaining debt will be discharged. 


If your bankruptcy attorney recommends Chapter 13, it’s important to understand the pros and cons.


Disadvantages of Chapter 13 Bankruptcy

When filing for Chapter 13 bankruptcy, there are certain disadvantages you need to consider. 

Timeline: Whereas Chapter 7 bankruptcy can be resolved in a few months, Chapter 13 will not be resolved until your repayment plan is complete. 

Disposable Income: Your repayment plan will require you to spend your disposable income to submit monthly payments to the court. These will be put towards your outstanding debt with creditors. This means you will have limited extra income throughout your plan.

Credit Report: Chapter 13 bankruptcy can stay on your credit report for years. In fact, it could be on there for up to 10 years. It can put you at risk of losing your credit cards and qualifying for new lines of credit – including a mortgage loan. 

Remaining Debt: Chapter 13 will not discharge all of your debts. Certain debts, like student loans or child support, cannot be discharged. 


Advantages of Chapter 13 Bankruptcy

While there are some drawbacks to filing for Chapter 13 bankruptcy, there are also some advantages that can make it the right debt relief solution for you. 

Lowered monthly payments: Through a repayment plan, your monthly debt obligations can be lower than what you were paying before filing for bankruptcy. This allows you to repay your creditors, but not be under as much monthly financial stress. 

Reduced debt: Through bankruptcy, you may be able to negotiate lower overall debt. After you complete your repayment plan, your creditors cannot hold you responsible for repaying the remaining debt in full.

Rebuild Your Credit: While a Chapter 13 bankruptcy will remain on your credit report for up to a decade, it’s not permanent. It can also look more favorable to lenders than a Chapter 7 bankruptcy, as it shows you repaid your debts through a payment plan. This can make you more desirable to lend to than someone with a Chapter 7 bankruptcy on their record. Chapter 13 bankruptcy can also look better on your credit report than mounds of debt and repossession, which could happen if you don’t file for bankruptcy at all. 

Stop Creditor Harassment: When you file for bankruptcy, an automatic stay goes into effect. This means that creditors cannot harass you for payments during your bankruptcy proceedings. 


Contact an Attorney

Do you need an Oklahoma City bankruptcy attorney to help you determine if Chapter 13 is the right solution for you? There are key advantages and disadvantages to this type of bankruptcy. It’s crucial to hire an experienced attorney to help you review the pros and cons and answer all of your questions so you know what to expect. Don’t let debt ruin your life. Call (405) 529-9377 for a free case review.

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