3 Disadvantages to Chapter 13 As a Way to Repay Debt
When people find themselves unable to repay debt, the natural solution is to file for bankruptcy. In Chapter 13 bankruptcy, the unsecured debt gets eliminated while secured debt is either restructured or it is left untouched and the debt repays their debt (the logic is that without the unsecured debt, the debtor can manage their debts better).
The largest benefits to Chapter 13 bankruptcy is that it allows the borrower to retain control and possession of his or her greatest and most important assets (the home, the car, etc.) rather than losing them to liquidation. On the surface, Chapter 13 is a great alternative when it comes to bankruptcy. However, there are some big disadvantages. Here are the top three:
1. Chapter 13 is only as “good” as the borrower’s ability to repay the remaining debt. If the borrower defaults on the remaining debt, he or she can be forced to file Chapter 7 and lose those assets after all.
2. Chapter 13 still gets your credit history blacklisted. Even if saw only a marginal amount of unsecured debt be cleared out thanks to bankruptcy and you still have to repay a substantial secured debt load, your credit score will only reflect that you have filed for Chapter 13. You will be impacted by this for up to ten years.
3. Chapter 13 will result in your inability to obtain credit. Since your credit score is hurt by bankruptcy, very few lenders will lend to you. And those that will help will want to be compensated for it, resulting in higher interest rates and, sometimes, up-front fees.
As demonstrated above, while Chapter 13 offers a great alternative to liquidation, there are still some harsh disadvantages. These disadvantages, as it turns out, makes Chapter 13 resemble Chapter 7 rather closely. The difference is that in return for your keeping your assets, you must pay the non-financial price that people filing Chapter 7 pay.
Chris has more than 16 years of financial services industry. He maintains a Debt Blog website at HowToRepayDebt.com. As well, he manages a website about Class-B CDL Jobs for people looking for information about this specific type of Commercial Drivers License.
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