Deciding to file Chapter 13 bankruptcy in Maryland is a potentially life-changing decision. This form of bankruptcy can allow you to get a handle on your finances if you’re drowning in debt. Weighing the pros and cons of Chapter 13 helps you decide if filing is best for you.
Understanding Chapter 13
Chapter 13 bankruptcy involves creating a plan to repay your debts. It’s not the same as Chapter 7, which wipes out most types of debt. Instead, Chapter 13 allows you to create a payment plan with your creditors to repay some or all of your debts.
Advantages of Chapter 13
1. The Chapter 13 repayment plan is manageable because it’s tailored to fit your budget. The plan allows you to repay your debts over three or five years.
2. Chapter 13 allows you to keep your belongings. Some other forms of bankruptcy might require you to sell assets to repay debts. Chapter 13 provides asset protection that allows you to keep items such as your home or car.
3. Creditors will leave you alone once you file for bankruptcy. That means actions such as foreclosure, wage garnishment and repossession must stop. Creditors shouldn’t contact you at all once you file bankruptcy.
Disadvantages of Chapter 13
1. The Chapter 13 process takes longer than some other forms of bankruptcy. For instance, the Chapter 7 process is done within a few months. With Chapter 13, you must follow the repayment plan for three or five years.
2. Your credit score will drop. A Chapter 13 filing stays on your credit report for 7-years. That affects your ability to get good interest rates and loans.
3. You have to qualify for Chapter 13. In addition to a steady income, you must have filed your tax returns for the previous four years.
Chapter 13 can provide relief if you need a more manageable way to repay your debt. Looking at the pros and cons will give you a better idea of how to proceed.