Bankruptcy Counseling for Chapter 13

Bankruptcy is a state of financial depression where the individual is totally unable to repay his debts and resorts to initiating a court order to get at least a partial reprieve of his debts and repay the rest of them. Due to the court injunction, this debt situation is made public and his credit rating plummets. For this reason, bankruptcy should only be filed in true desperate need.

Bankruptcy counseling is a mandatory advice session during which debtors are taught the pros and cons of filing for bankruptcy. They are also informed of any alternatives to filing for bankruptcy and are guided to the bankruptcy chapter that applies to their situation.

Chapter 13 Bankruptcy:

Also called “wage-earner’s bankruptcy,” to file under chapter 13 the debtor be employed and devote a part of his monthly income to debt repayment. A trustee is appointed to collect the dues. Here, the debtor can retain non-exempt properties and follow a court-initiated repay plan for repayment to creditors.

Who Can File for Chapter 13 Bankruptcy?

  • Individuals with a regular income.
  • Individuals with more than $750,000 in secured debt or $250,000 in unsecured debt.

Types of Debt That Can Be Discharged Under Chapter 13:

  • Personal loans
  • Credit card loans and dues
  • Certain types of income tax debt
  • Mortgages
  • Debt due to embezzlement, fraud, or false representation
  • Debt due to injury to another person or property

Types of Debts That Cannot Be Discharged Under Chapter 13:

  • Alimony debts
  • Maintenance and child support obligations
  • Government funded education loans
  • Long-term home mortgages
  • Debt due to criminal convictions
  • Debt due to death or injury caused by rash or DUI

Advantages of Filing Under Chapter 13:

Under chapter 13, the debtor can receive the following advantages:

  • Retaining both exempt and non-exempt properties
  • Non-dischargeable debts under Chapter 7 can be discharged under Chapter 134
  • Wage-garnishment can be avoided
  • Protection for cosigners
  • Delay in home foreclosure
  • After filing under chapter 7, one can immediately file for chapter 13 to settle the remaining dues
  • Provision for reduction of interest rates for some loans
  • Payment terms on certain debts can be extended

Disadvantages of Filing Under Chapter 13:

  • Damaged credit score appears on the debtor’s credit report for 7 years
  • Credibility of the debtor becomes questionable
  • Further ability to take loans on credit becomes difficult
  • A rigid budget is enforced
  • Not all debts are discharged
  • Limited amount of debt is discharged
  • High legal fees
  • Stock and commodity brokers cannot file under chapter 13
  • After discharge from chapter 13, a debtor seeking new loans will face higher interest rates

This bankruptcy counseling article provides an overview of the pros and cons of filing for bankruptcy under chapter 13. Using these guidelines, it is up to you to judge whether chapter 13 is suitable for your situation or if you might want to consider opting for debt management instead.