You may have heard of the different types of bankruptcy--Chapter 7, 11, and 13--for years without actually knowing what they mean. Bankruptcy itself is a legal procedure designed to help relieve individuals and organizations of their burdensome debts. Declaring bankruptcy requires careful consideration beforehand, because even though many of your debts are forgiven or restructured, the fact that you declared bankruptcy can affect various aspects of your life for years.
Today we are looking at how Chapter 13 bankruptcy can affect your future. Remember that bankruptcy is a way to help you overcome your debts, but the process is not without its risks. You must weigh them all when deciding to hire a bankruptcy lawyer to assist you through the complexities of bankruptcy law. Here are some consequences of filing for Chapter 13 bankruptcy.
It Requires Most of Your Spare Cash
Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy requires you to pay back your creditors over a three-to-five-year period. You won’t be forced to surrender property such as a house or vehicle, but you do need to keep up with the often rigorous repayment plan. This essentially means that once you take care of your normal monthly living expenses, you will likely be putting all spare income toward your restructured debt. You must therefore devise a personal spending plan that works for you, since you can still default on mortgage payments and lose your home in foreclosure.
It Weakens Your Credit Score
As you can imagine, having filed for Chapter 13 bankruptcy will negatively affect your credit score, and your filing can stay on your credit report for up to ten years. As a result, it may be difficult for you to obtain loans for large amounts, such as a mortgage for a house. However, it won’t be impossible to get a mortgage. Lenders will vet you as they do anyone, and keep in mind that the magnitude of your Chapter 13 bankruptcy filing diminishes over time. If you establish yourself as a trustworthy payer of your Chapter 13 debts over the three to five years of your plan, a mortgage can still be in your future.
It Affects Credit Cards, Child Support, and Student Loans
Typically, while going through bankruptcy, a debtor cannot apply for any more credit without first obtaining permission from the bankruptcy court. The court will review why you need additional credit and make a decision accordingly. It is usually a good idea not to try to obtain a new credit card during bankruptcy.
You’ll also be required to pay back child support and student loans while going through bankruptcy. These payments are considered nondischargeable. The issue of alimony is slightly more complex. Various factors determine whether alimony will be discharged. However, it is generally not a good idea to view Chapter 13 bankruptcy simply as a way to avoid alimony payments.
Of course, Chapter 13 bankruptcy involves much more than is documented here, but we hope this article has given you a decent overview of how life can change after you file. Don’t forget that declaring any kind of bankruptcy is usually seen as a responsible way to manage your debts going forward, but you must work hard to keep up with the payments and ensure that everyone gets what they are owed.
To help with the confusion, speaking with a bankruptcy lawyer is recommended. Those in Luzerne County, Pennsylvania, who would like to learn more about Chapter 13 bankruptcy can contact JPP Law for a free consultation on their situation.