Chapter 13 Bankruptcy - Advantages and Disadvantages!

A Chapter 13 Bankruptcy is a "reorganization bankruptcy" which allows individuals and businesses to keep property they would otherwise lose if they continue on the same track they are on or if they file a Chapter 7 bankruptcy. A Chapter 13 allows the debtor to pay off a default over a period of three to five years rather than surrender the property.

The trustee in charge of the Chapter 13 must approve the repayment plan. The court must also approve the repayment plan in order for it to work. You must also pay ten percent of your bankruptcy payment to the trustee every month for his or her work.

If payments aren't maintained, it can turn into a Chapter 7 or the property you are trying to protect can be removed from the umbrella of the Chapter 13.

A Chapter 13 can take anywhere from two to four months to process depending on your financial situation. A lawyer is a must for this type of bankruptcy due to the complexity of the situation, which will add to your total debts.

Advantages of a Chapter 13:

1. You can keep the property that you have defaulted on as long as you can maintain bankruptcy payments and regular mortgage payments.

2. You will avoid future collection activities during the term of the bankruptcy.

Disadvantages of a Chapter 13:

1. A Chapter 13 is a more difficult process and takes the help of an attorney, costing you more money.

2. They are very costly, sometimes tripling your total debt during the process of the bankruptcy proceedings (legal costs and additional missed payments during the process.)

3. On top of the bankruptcy payment, you must also maintain regular payments on all of your debts including your mortgage, otherwise the lender can file a Stay of Relief and remove your property from the bankruptcy umbrella. At that point, if approved by the court, they may foreclose on your property.

4. Even if you are making bankruptcy payments and regular mortgage payments, the lender continues to hold your account in arrears (behind or late) and charges you very costly late fees. Over the period of your bankruptcy, this can add up to over $10,000 of additional debt and lead to foreclosure based on being $10,000 behind after the chapter 13 bankruptcy is paid off.

Only file a Chapter 13 as a last resort because it will most likely only delay the foreclosure process.

If feel you may need to file a Chapter 13 bankruptcy, don't file just yet! If you are not yet in the foreclosure process but fear you are heading in that direction, or you feel your debts are out of control, I highly recommend checking out CuraDebt (for personal debt) or CuraDebt (for business debt). CuraDebt is a debt counseling company specializing in helping businesses and consumers eliminate their debt and resolve their financial problems that result from hardships such as unemployment, medical problems, death in the family, and divorce - all in all, helping you avoid bankruptcy.

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