Downsides to Filing Chapter 13 Bankruptcy

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Filing Chapter 13 bankruptcy is a humongous decision that no one ever wants to face. After all, nobody wants to deal with financial problems that force them to take extreme measures. However, while this decision can be challenging, there are instances where filing Chapter 13 with a professional bankruptcy attorney is the best decision for you.

While most bankruptcy processes always have negativity attached to them, sometimes it’s the best solution. It’s also normal to be concerned about your financial situation, credit, self-image, and reputation after filing for bankruptcy.

This segment highlights what Chapter 13 bankruptcy is and the downsides of filing you should consider.

How Does Chapter 13 Bankruptcy Work?

Chapter 13 bankruptcy allows people with regular income to repay a portion of or all their debts over a specified time limit, usually between 3 and 5 years. The filer works with a bankruptcy lawyer to devise a court-approved repayment plan for the debts owed. The repayment plan must show how the filer plans to repay the debt to creditors over the specified period.

Upon filing Chapter 13, all collection efforts against the filer will be prohibited throughout the debt repayment period. In simpler terms, Chapter 13 allows the filer to stretch out, modify, or reduce payments, helping make repayments more manageable during this time of financial distress. It also allows the filer to save their assets, such as cars from repossession and homes from foreclosure.

The amount repaid primarily goes toward priority debts like car loans, mortgages, support obligations, and taxes first. The remaining amount pays off some of the lower-priority debts, including medical bills, credit card debts, and utilities.

Usually, balances on some types of unsecured debts may be discharged when the court-approved repayment plan has been met at the end of the plan. That’s to say, the filer will no longer be personally liable to make any further payments on these debts.

Downsides of Chapter 13 Bankruptcy

While there are several positives to filing Chapter 13 bankruptcy in Wisconsin, filers should also consider the negatives, which include the following:

  • The filer will have to agree to a 3 to 5-year debt repayment plan, during which any extra income they earn will go into repaying the debt. This means that other than their basic necessities, there won’t be anything left over for buying luxury items. Consequently, even missing specified payment dates risks dismissal, leaving the filer with no bankruptcy protection. Unfortunate events, such as medical issues, job loss, and address expenses, can strain this plan.
  • The filer will have to agree to a 3 to 5-year debt repayment plan, during which any extra income they earn will go into repaying the debt. This means that other than their basic necessities, there won’t be anything left over for buying luxury items. Consequently, even missing specified payment dates risks dismissal, leaving the filer with no bankruptcy protection. Unfortunate events, such as medical issues, job loss, and address expenses, can strain this plan.
  • Chapter 13 bankruptcy doesn’t discharge certain debts, such as alimony, student loans, child support, and certain tax debts. These debts are also not dischargeable when filing a Chapter 7 case. Similarly, any debts the filer incurs after filing won’t be covered. Their obligations will continue even after the filer completes the court-approved repayment plan.
  • The filer should expect a significant drop in their credit score and credit report if they file for Chapter 13. The bankruptcy report can also stay on the filer’s credit report for up to 10 years from the filing date. These are not desirable figures, but they’re better than the alternative of defaults, repossessions, multiple defaults, and other collection processes on record.
  • The filer can’t file for Chapter 7 bankruptcy if they previously filed Chapter 13 proceedings within the past 6 years.
  • Unless the filer already has a mortgage, it will be difficult for them to acquire one in the future after filing for Chapter 13.
  • The filer can’t file for Chapter 13 bankruptcy if they had a Chapter 7 or Chapter 13 request dismissed within the last 180 days because they violated a court order or requested the dismissal.
  • The filer will have to surrender their credit cards when filing.

Hire an Attorney to Help With the Chapter 13 Bankruptcy Process

Filing for Chapter 13 can seem daunting, but it may also provide a real solution for a fresh financial start for individuals struggling with debt. Hiring a professional bankruptcy lawyer to review available options during the initial consultation process is invaluable. Filing Chapter 13 can be the answer for individuals with a steady income to handle debt payments and want to keep their assets.

Evaluate priorities and seek legal counsel from a professional attorney when filing Chapter 13 bankruptcy in Milwaukee. You don’t need to go through this complicated process alone. Contact our bankruptcy attorneys today to schedule a consultation.