For people who are ineligible for Chapter 7 bankruptcy, or wish to repay their debts using a repayment plan, filing for a Chapter 13 bankruptcy can be a great option. The following are some pros and cons to declaring a Chapter 13 bankruptcy.
- While under Chapter 13 the repayment of debts generally take place over a longer term, it’s often an advantage to have more time to budget and make disciplined payments; there can also be more flexibility on the payment terms in the context of Chapter 13. Furthermore, once you have successfully completed the Chapter 13 repayment plan, creditors cannot then obligate you to pay them in full.
- While you can only file a Chapter 7 bankruptcy once every eight years, you can file for Chapter 13 repeatedly (every two years) if you need to (though each additional filing will show up on your credit report).
- A Chapter 13 bankruptcy is noted on your credit score for up to seven years, while a Chapter 7 bankruptcy will remain for ten years.
- If during a Chapter 13 repayment plan you experience a sudden and significant financial hardship like losing your job or accumulating medical bills, your bankruptcy trustee can modify the repayment plan. The court may even allow a debt discharge due to hardship.
- You limit your Chapter 7 options. You cannot file for a Chapter 7 if you previously filed under Chapter 13 within the last eight years.
- A Chapter 13 repayment plan can take a long time (up to five years in some cases).
- Since you will be repaying your debts out of your post-bankruptcy disposable income, you will have cash tied up throughout the duration of the repayment plan.
Your debts could be too high to qualify for Chapter 13. If your secured debts exceed $1,184,200, you will be ineligible for a Chapter 13 bankruptcy.