If you seek serious debt consolidation, chapter 13 bankruptcy can provide essential debt relief. But, according to the new bankruptcy law, it can also cause you some pain that you need to be aware of.
Although it does not wipe out all debts, chapter 13 can be a smart way to consolidate debt and repay creditors based on how much you can afford to pay. But, below are 9 reasons why this clearly isn't a sexy debt consolidation:
1. Chapter 13 Bankruptcy Remains on Credit Reports for 7 Years
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According to Experian, "declaring bankruptcy has the greatest single impact on credit scores." On credit reports, accounts state, "Included in bankruptcy", which damages opportunities to get credit cards, signature, car, or mortgage loans, and to get insurance or to rent an apartment.
2. Protection from Creditors Immediately Stops After a Case Dismissal
If your debt consolidation payments are late and your case is dismissed, collection activity will resume, your car can be repossessed, and the bank can resume foreclosure on your home.
3. You Must Wait Six Months to Reapply
After a chapter 13 bankruptcy discharge, you must wait 6 months to reapply.
4. It Costs More Money to File for Bankruptcy
The filing procedures of chapter 13 are more rigorous than for 7. Thus, attorney fees are relatively higher. Additionally, besides the $299 mandated court fee, you may have to pay credit counseling course fees.
5. Requirement of a Credit Counseling Session before Filing
Before you can file for chapter 13, you must complete a counseling session. This includes a financial evaluation, discussion of bankruptcy alternatives, and presentation of a personal budget plan by a credit counselor. You must also provide a certificate of completion of the counseling session.
6. Requirement of Debtor Education from an Approved Credit Counseling Organization
Before your case can be discharged and you get any debt consolidation benefit, you must complete Debtor Education with an approved credit counseling organization. You must also provide a certificate of completion.
7. Chapter 13 Requires You to Repay Approximately 50% of Your Debt
Chapter 13 isn't the prettiest means to consolidate debt. Generally, you have to repay 50% of the creditors claim spread over a 36 to 60 month repayment plan. Thus, if you owe $10,000, you may be forced to repay $5,000.
8. Two Thirds of Chapter 13 Cases are Dismissed or Converted to a Chapter 7
If you fall behind on payments, the bankruptcy trustee will file a motion to dismiss your case. In cases where you can't afford to make the payments, your case may be converted to a chapter 7.
9. Unpaid Debts for Child Support or Alimony Can Jeopardize Your Bankruptcy
If your payments on child support or alimony are delinquent, the U.S. Bankruptcy Courts will not permit you make a chapter 13 plan or discharge your debts via chapter 7.
Knowing the facts on chapter 13 will help you make the proper step in debt consolidation. Also, ensure to evaluate all of your bankruptcy alternatives so you can make the right decision to consolidate debt.
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