Understanding Chapter 13 Bankruptcy in California; Merits and Demerits

Advantages and disadvantages of Chapter 13 Bankruptcy in California

One of the options for relief when facing dire financial stress and harassment from creditors is to file for bankruptcy. Whether it is Chapter 7 or Chapter 13, the bankruptcy claims, if successful, would be enough to get the creditors off your back at least for the foreseeable future. Compared to the first option, Chapter 13, bankruptcy is the most common and easily obtainable. With it also comes a range of advantages and disadvantages as we would see below.

In California, residents who have a regular income that would allow for repayment over time would easily succeed in filing for Chapter 13 bankruptcy. Additionally, an established maximum value will be a requirement in granting Chapter 13 bankruptcy in California courts.

A primary advantage that a Chapter 13 bankruptcy claim has over a Chapter 7 is that it allows the debtor to repay their creditors within a maximum of 3 to 5 years, with the rest being discharged. To accomplish this, the debts would have to be consolidated into a single plan. Additionally, the debt payment will be adjusted depending on the debtor’s income.

Chapter 13 also allows you to keep the properties you are paying for. Thus your assets will not be at risk of being sold. The accounts listed in such a bankruptcy will be removed at the end of 7 years, thus allowing you to rebuild your credit scores.  Perhaps even more interesting, the Chapter 13 claim does not require tests as would be in Chapter 7.

Despite these advantages, Chapter 13 bankruptcy has its demerits depending on your situation. Among others, Chapter 13 bankruptcy would reflect on your credit score for a minimum of 10 years, while committing you to make payments for the next five years. California residents who have filed for this type of bankruptcy before, also lament the fact that you would have to commit all your disposable income during this period towards paying off your debts. Besides, one will not be allowed to file for a Chapter 7 bankruptcy following a successful Chapter 13 for the next six years.

Despite the full range of advantages that a Chapter 13 bankruptcy has, it also has its disadvantages as we have seen, depending on your situation. It is thus advisable to seek an attorney’s help with the questions you might have before filing for a Chapter 13 bankruptcy.

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