In a recent post, we talked about Chapter 7 bankruptcy, and some of the things you need to know about this very helpful form of bankruptcy. However, there are some people who do not qualify for Chapter 7 based on their income, and thus they turn to a Chapter 13 bankruptcy filing. Unlike Chapter 7, which is considered the “liquidation” option, Chapter 13 is considered the “consolidation” option.
What this means is that your debts will be reorganized, and instead of being eliminated as is the case in Chapter 7 bankruptcy, they are established in a new way to allow you to pay the debts off. These new payments require a commitment from you, and you can’t break this commitment, lest you suffer some serious consequences.
While that may sound harsh, a Chapter 13 bankruptcy offers many benefits. One of these benefits is that you get to keep your home. You can even scrub a second mortgage from your record. Chapter 13 bankruptcy also affords you the opportunity to protect numerous other assets, including your car or your business.
What are the disadvantages of this type of bankruptcy? In addition to what we outlined above — the payment commitment is a big part of Chapter 13 — this type of bankruptcy will also negatively impact your credit score, though this is more in the short term. Still, the bankruptcy will remain on your credit report for a decade. Prepare yourself for this type of bankruptcy by consulting with an experienced attorney.