Chapter 13 bankruptcy gives American's the chance to become debt-free over the course of the next three to five years. Filing for bankruptcy under chapter 13 gives a person experiencing financial difficulties the opportunity to write-off debt whilst protecting their non-exempt assets. Unlike chapter 7 bankruptcy, there is no means test but personal credit scores will still be negatively affected.

Advantages of Chapter 13 Bankruptcy

  • Debt-free. It gives a US citizen the opportunity to become debt-free once the pre-agreed number of monthly repayments have been made. The remaining debt is written-off.
  • Prevents foreclosure. Provided that the payments are made each month, a debtor is able to avoid foreclosure or a short sale.
  • Non-exempt assets. Whilst a debtor would lose non-exempt assets under chapter 7 bankruptcy, filing for bankruptcy under chapter 13 provides the insolvent with protection.
  • Further legal action. Filing for bankruptcy prevents any further legal action being initiated by other creditors that haven't yet done so.
  • Flexibility. Provided creditors agree, the terms can be made more flexible regarding repayments.

Disadvantages of Chapter 13 Bankruptcy

  • Monthly repayments. An insolvent is expected to make contributions each month from any disposable income in order to maintain possession of any non-exempt assets.
  • Credit score. Filing for bankruptcy will negatively affect a personal credit score for a period of between 7 and 10 years. It will begin to improve once a couple of years have elapsed. Also, it isn't quite as bad as chapter 7 bankruptcy as repayments are being made.
  • Access to credit. A low credit score makes it difficult to gain access to credit, although there are a number of lenders that specialise in adverse credit customers.
  • 6 year rule. Those filing for bankruptcy cannot file under chapter 7 more than once in any 6 year period. This rule may be waived for those that have repaid over 70 per cent of unsecured debts.
  • Taxes, child support and alimony. It does not discharge a debtor of their obligation to pay any taxes, child support or alimony.
  • Certain loans. Car and student loans can't be discharged by filing for bankruptcy, although protection will be afforded from further creditor harassment.
  • Mortgage lien. There may still be an obligation for debtors to repay any mortgage lien on a home.

Chapter 13 bankruptcy allows someone experiencing serious financial difficulties to reorganise debts and become debt-free after a period of three to five years. Whilst it doesn't involve making monthly contributions and will negatively affect credit scores, it does allow the insolvent to keep non-exempt assets that wouldn't be possible under chapter 7 bankruptcy.