Considering Paying off Debt With Chapter 13 Bankruptcy?

Consumer debt is here to stay, no matter what any of us tries to do. Like it or not, most of us have not discovered the art of living below our means, and buy things on credit. This is just a simple fact of American life. Credit cards simply make it easy. And because they recommend the "minimum payment plan", which many of us stick to despite its damaging effects, we are getting deeper in debt everyday. Meaning the interest gets paid slightly, but the principal is never touched. The brutal truth behind this situation is that it really can only occur for so long before things become a problem. And once this problem occurs, a decision must be made to fix the problem. Many Americans today choose Chapter 13 bankruptcy.

Chapter 13 bankruptcies are popular because they work extremely well for creditors, who will typically accept the terms with open arms. Typically, Chapter 13 will work for those with less than $250,000 in unsecured debt. A court typically reviews personal financial records and creates an affordable monthly repayment plan which varies in length between three and five years. This is very similar to the debt negotiation program that Debt Management Advisors offers, but with one caveat - it goes on your credit report - and can damage your credit for some time to come.

Bankruptcy Problems

While we will grant you that Chapter 13 is better than Chapter 7 bankruptcy (which typically defaults on close to all of your debt), it still goes on your credit report for a total of seven years! Chapter 7 stays for 10 years. Either way, though, you are effectively prohibited from receiving low-cost credit for almost a decade. Although this form of bankruptcy does protect you from creditors and from losing your personal property, it is still very damaging to your credit. Especially when alternatives like credit counseling and debt negotiation are available for so much less of a dollar and credit cost!

Even More Bankruptcy Disadvantages
So the Bankruptcy route doesn't sound so good, does it. Wait, there's more! If you miss one of your Chapter 13 payments during your payment period, the court has the right to dismiss your case. The result - you will have to pay your creditors the full amounts anyway, but with the added penalty of court costs. And, in the meantime, your credit is harshly bruised, and your ability to get such important credit as car loans or mortgages very strained. Certainly debt negotiation is a better bet.

If you have reached a debt management crossroads, there are a number of decisions you can make to deal with debt. But, bankruptcy, whether chapter 7 or chapter 13, should be considered last, only once all other options have been exhausted. Filing is a poor choice, and can set you back financially for longer than you might hope.

Before you consider this avenue, however, consider contacting us here. We can help you sort through your options.

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