Pros and Cons of Chapter 13 Bankruptcy

As with all things, there are pros and cons of Chapter 13 bankruptcy.

Pros

• You may catch up on:
  • certain back taxes
  • child support
  • past due property taxes
• You can keep property that is not exempt and would be lost in Chapter 7 bankruptcy by paying the “liquidation value.”
• Under certain facts, secured debts can be reduced in the amount that is paid back and the interest rate.
• You may stop:
  • Auto repossessions
  • Home foreclosures
• Student loans are not usually dischargeable but may be included in Chapter 13 bankruptcy as part of the “pool” of unsecured creditors, delaying the regular student loan payment while the bankruptcy is pending. Generally, Chapter 13 bankruptcy is not a great way to handle student loan debt because interest continues to accrue. Non-bankruptcy options may be a better choice if your major debt issue is student loans.

Cons

• You can’t sell property without approval from the court.
• You must get court approval to borrow money while the case is pending.
• Lump-sum windfalls, such as an inheritance, a lottery win, personal injury, and worker’s compensation settlements, if not exempted, may have to be turned over to the Trustee to disburse to unsecured creditors.
• You may be required to stay in bankruptcy for up to five years.
• You have to send a copy of your tax return to the Chapter 13 Trustee each year. Generally, if your refund is more than $2000, you lose the “excess” over $2,000.
• You may be forced to tie up your car or mobile home title until the case is finished. Trying to trade or replace a vehicle being paid through the Chapter 13 plan is very difficult.

We hope these pros and cons of Chapter 13 bankruptcies help you decide what’s best for your situation.

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