How To Decide Whether To Pursue Chapter 13 Bankruptcy?
Before you file for Chapter 13 bankruptcy, it's a good idea to think about how well it may or may not meet your needs. Chapter 13 is a process that lets people make payments on reduced amounts of what they owe. There are solid reasons to pursue Chapter 13, and there are some reasons to consider other options. You can make a better decision by looking at these four issues.
Ability to Make Payments
Foremost, you should consider whether you'll have the ability to make payments. The process requires between three and five years of installments. If your financial situation is tight enough that you have doubts about paying on that schedule, you can expect the judge to have similar doubts. Talk with an attorney at a Chapter 13 bankruptcy law firm to learn whether you meet the eligibility guidelines and have the necessary resources to pay.
Types of Debts
Chapter 13 allows you to restructure both secured and unsecured debts. A secured debt is something like a car loan. If a debtor doesn't make their payments, the bank can repossess the physical item. Unsecured debt is something like your credit card bill. No one at the bank is going to repossess that coffee you had two weeks ago on your way to work.
Secured debts are only eligible for restructuring in Chapter 13. If you file Chapter 7, the creditor is likely to take the asset back. Folks who don't have outstanding secured debts may be further ahead to liquidate in Chapter 7, especially if they don't own a secondary residence or a high-end vehicle. Again, you should visit a Chapter 13 bankruptcy law group to discuss your options before committing to one.
Also, it's worth considering other payment options. Creditors are often willing to restructure debts outside of bankruptcy to avoid potential losses. If you can talk your creditors into a plan, that's worth pursuing.
Remember, you can always keep bankruptcy in your back pocket as an option if that plan doesn't work out. No previous agreement precludes your right to ask the court for relief.
State of the Debts
Some debts are easier to restructure or discharge than others. For example, there are ways to potentially discharge an underwater mortgage. This is a home loan where the debtor has paid more than the current market value of the house. During the restructuring process, the court may discharge part or all of the remaining loan.
Reach out to a local chapter 13 bankruptcy law group to learn more.