Bankruptcy essentially happens to be a legal process. It’s invoked when an individual or debtor finds it difficult to pay his or her creditors anymore. Now, there are several types of bankruptcy code that’s permitted under the US Code, amongst which there’s Chapter 13. This particular chapter is commonly used for personal bankruptcy purposes.
Chapter 13 bankruptcy – A close look
This is basically a US bankruptcy proceeding wherein you’d be undertaking a reorganization of your finances under the supervision or approval of the courts if youfile bankruptcyunder Chapter 13. You’d have to submit and follow through with a plan that’s essentially meant to pay back the outstanding debt to your creditors, but within 3 to 5 years. In maximum situations and circumstances, the repayment plan should be such that it provides a substantial payback to the creditors, or in other words you could say an amount that’d be equal to other forms of bankruptcy. In fact, if necessary, then almost 100 percent of the your income might be utilized for repayment.
Chapter 13 – The functions involved
This is essentially a Chapter that doesn’t call for liquidation, rather it serves the essential purpose of restructuring debt and that too based on the prospect of future income. Here the function remains to pay off the creditors as much as possible and hence little if any of the principal happens to be forgiven. If you’re one who has got secured debt like say mortgages, car payments or leases, then Chapter 13 should prove the right option for you.
This should be there on your credit report and that too for the next 7 years at least. It’s during this period that you might find it rather difficult to get loans or even mortgages. You might be able to get a few but then, it’s more than likely that you’ll have to pay rather high rates of interest for the loan you take out.
Chapter 13 bankruptcy – The pros of it
Chapter 13 bankruptcy obviously comes with a lot of pros and they’re –
- You get more time: It’s true that Chapter 13 proceedings generally take longer, but at the same time it’s also true that you get more time in hand when it comes to making your payments. There are also Chapter 13 trustees who might be flexible about your payments.
- There’s automatic stay: Once you file Chapter 13 bankruptcy, the court would immediately impose an automatic stay. This stay would immediately relieve you of any ongoing collection efforts.
- You can reorganize plans: You should be able to reorganize your payment plan depending upon your income and this is very well allowed by the court.
Chapter 13 bankruptcy – The cons of it
There are obviously certain cons associated with Chapter 13 as well. 2 major ones are as follows –
- Ongoing trustee oversight: Due to the debt obligations associated with Chapter 13, the trustee continues to maintain an active role as far as your financial life is concerned. This would obviously be applicable in case of the repayment plan duration.
- Your credit is frozen: You’d be unable to obtain new credit while you’re going to follow the court-ordered plan. You wouldn’t really be able to get any other credit during this time span barring a true emergency.
Keep in mind the above facts when you file bankruptcy for it’ll help you tackle the various aspects associated much better.