Disadvantages of Chapter 13 Bankruptcy

 

As the old saying goes, "Some good things just never last." There are lots of instances wherein things may seem too good to be true but only to find out it does more harm than good.

 

Take for example the different bankruptcy proceedings. Generally, they seem like heaven's gift to people whose debt are almost up to the brink of explosion. Keep in mind, this "gift" comes with a price to pay.

 

Considering how promising Chapter 13 bankruptcy may look when it comes to reorganizing debts, there are, sad to say, some imminent drawbacks. Compared to Chapter 7, Chapter 13 may reflect a better outlook in sorting out the debts. But then, in reality, it is still a dangerous option to take.

 

To further demonstrate how Chapter 13 can also be bad, bad, bad, here are some things to ponder upon:

 

1. It is still a blemish on a debtor's credit rating.

 

Like any bankruptcy, filing a Chapter 13 bankruptcy creates a record which stays on the individual's credit report for almost 10 years. Therefore, even if it seems a kinder option to take, it still puts a dirty spot on your credit rating. This will make future credit application approvals next to impossible.

 

2. Debts are continuously active for years thereby burdening future income.

 

A Chapter 13 payment plan must run a minimum of 36 months unless the debts are paid in full in a shorter time. The payment period may be extended beyond 36 months, meaning there are possibilities that future income of the debtor may only be distributed to creditors alone, thus providing possible risks of getting into more additional debts.

 

3. Your debt must be under $1,000,000 to qualify for Chapter 13 filing.

 

Under 11 U.S.C. 109 (e) provisions, a debtor must have unsecured debts less than $290,525 and secured debts less than $871,550. This would mean that if you have debts higher than those amounts, you may not qualify for filing a Chapter 13 bankruptcy proceeding.

 

4. Only individuals may file a Chapter 13 bankruptcy .

 

Partnerships, stockbrokers, commodity brokers, and corporations cannot file a Chapter 13 bankruptcy. However, legally married people may file together, commonly known as "joint bankruptcy" . There are also instances wherein married couples may also file individually if they want to.

 

5. In the event the debtor fails to comply with the Chapter 13 payment plan, the case will be dismissed.