Filing for Chapter 13 can save you financially. However, like with any bankruptcy tool, you do need to make certain you’re using it correctly. There are some disadvantages to Chapter 13, and sometimes, those disadvantages do outweigh the advantages. If you’re considering bankruptcy, here are some of the disadvantages of Chapter 13 bankruptcy you need to be aware.
You Will Lose Your Credit Cards
Many people don’t realize that, as part of the process of restructuring debt, their credit cards will be canceled. It can also take a year or so before you can open a new line of credit. Even when you can, it’s likely the interest rates will be higher.
It Can Take Five Years to Settle All of Your Debts
In Chapter 13, your debt is reorganized, not eliminated. It may take as long as five years to pay off this reduced and reorganized debt. That does mean you’ll have to deal with it longer than if you filed for Chapter 7, which eliminates debt. Since this debt is covered by what the bankruptcy court rules is your “disposable” income, it means you’ll be able to cover all of your necessities but have no extra money for vacations or other fun things.
It Makes It Harder to File for Chapter 7 Bankruptcy
If you file for Chapter 13 bankruptcy and later determine you need to file for bankruptcy again, it does make it more difficult to utilize Chapter 7. You won’t be able to file Chapter 7 bankruptcy for six years. However, you can file for Chapter 13 repeatedly, though it will hit your credit report each time you do so.
There Are Some Debts that are Not Discharged
Chapter 13 bankruptcy does not affect any alimony, child support, or student loan payments or debts. However, neither does Chapter 7.
You Have to Explain How Your Finances Got Where They Are
This can be embarrassing, but it’s a part of the Chapter 13 process. However, the judge and bankruptcy trustee involved have heard many, many cases. There’s likely nothing about your situation they haven’t heard before. Remember that they are professionals, and they’re not going to laugh at you or share any details of your case with others.
If you’re ready to file for bankruptcy, but aren’t sure which option is right for you, contact the offices of Michael F. Kanzer today. We can help.