What are the Disadvantages of Filing Chapter 13?
Filing Chapter 13 can offer many benefits. It does, however, have some disadvantages including:
- Only individuals with regular, stable income can file a Chapter 13 case.
- You will be under the supervision of the Court for a period of 36 to 60 months. In a Chapter 7 case, you receive your discharge in about 120 days. In a Chapter 13 case, you don't receive your discharge until you complete your plan which will take from 36 to 60 months. If you fail to meet all the requirements of your plan, your Chapter 13 case can be dismissed without you receiving a discharge. This will leave you in a position of still owing all of the debt you had at the beginning of your case less any payments you made while you were in Chapter 13.
- You cannot incur any new debt while you are in Chapter 13. If you have to purchase a new car or refinance your home, you will have to get the Court's or the trustee's approval while you are in Chapter 13.
- It is more expensive to file a Chapter 13 case than a Chapter 7 case. Generally speaking, the fee for a Chapter 13 case will be up to $2,000 higher than the fee you would pay for a Chapter 7.
- You can pay any back child support or alimony that you owe over time; however, you must remain current on your alimony and support payments after you file your case. If you fall behind on such payments, your case can be dismissed or you can be denied a discharge.
- Student loans are generally not discharged in a Chapter 13 case and are treated like all other unsecured creditors. As such, if you are paying a small percentage of the amount you owe to your other unsecured creditors, your student loans will receive that same percentage. At the end of your case, the remaining balance of your student loans, plus accrued interest will still be owed.
- Failing to file tax returns or pay taxes which become due after your case is filed can result in your case being dismissed.
- A Chapter 13 case in which you pay less than 70% of the amount owed to unsecured creditors has the same effect as the filing of a Chapter 7 case. Unlike a Chapter 7 case, which will generally be over in 120 days, you will remain in bankruptcy for 36 to 60 months. The 8 year limitation on filing another Chapter 7 will still apply even though you will have paid more money to your creditors than they would likely have received in a Chapter 7 case.
I can explain all of your options to you. Schedule an appointment for a free consultation today, and we can discuss in detail the benefits that Chapter 13 can offer, and the possible disadvantages, too.