What You Should Know About Chapter 13 Bankruptcy

Unfortunately, bankruptcy is the only debt relief option some people have left. The two types of bankruptcy are Chapter 7 and Chapter 13, which are both repayment plans that acquire specific assets from the debtor. Although debt is completely wiped clean in Chapter 7 bankruptcies, your assets become converted to cash equivalents that creditors can legally sell. Chapter 13 bankruptcy Edmonds WA is a solution that is more direct and straightforward. To understand how Chapter 13 works, you should familiarize with the advantages and disadvantages it provides debtors.

Advantages of Chapter 13

Although you’re required to pay down the full debt or an altered amount of it to the state court, creditors cannot touch your assets and give away the property you own. This includes protection from foreclosure, which is ensured as long as you’re able to pay down the mortgage. Under Chapter 13, debtors can dictate the monthly amount they’ll pay to the mortgage lender. This is a reversal of roles, since the debtor typically must provide an agreed upon amount. Debtors are typically able to modify how much they owe with a home equity loan, lowering the amount of interest that is being accrued. Lastly, once the repayment plan comes to its conclusion, Chapter 13 bankruptcy does not press debtors for further obligations and litigators are prohibited by law from doing so. 

Disadvantages of Chapter 13

Chapter 13 lasts from three to five years, which for some debtors comprises a lengthy period of time. The debtor’s disposable income, defined as the sum of earnings subtracted from expenses invested in necessities such as food, water, utilities and mortgage, must be obligated as part of the court’s repayment plan. In other words, you’ll have less personal income than you’d typically get to keep, lowering your budget while affecting your credit at the same time.

Knowing how Chapter 13 impacts the typical person’s livelihood helps you develop some insight as to what decisions you’d have to make if you qualify for this type of debt relief. However, in many ways, the advantages outweigh the disadvantages. There is a particular reason why somewhat more affluent debtors benefit more from this option.