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The Pros and Cons of Filing for Chapter 13 Bankruptcy

New Jersey is one of the most expensive states to live in, in America. It comes as no surprise then that many Americans in the Garden State have become overwhelmed by debt. When this happens, some people consider the possibility of filing for bankruptcy. However, the thought of losing their assets and having the ding on their credit report may not sit well with them.

While there may be no avoiding the temporary credit score scar, Forbes points out that people may be able to keep their assets when they file for Chapter 13 bankruptcy. With this type of bankruptcy, rather than sell assets to repay debts, debtors negotiate a repayment plan for some of their debts.

Chapter 13 bankruptcy involves counselling sessions. During these sessions, debtors work with a professional to craft a repayment plan. The plan will be based on the debtor’s disposable income. Note that the plan crafted in counselling is not always accepted. Creditors may object to some provisions and the court must also decide if the plan is acceptable.

One of the potential disadvantages is that any stay placed on assets is temporary. If a debtor should miss payments, the stay may be lifted and creditors may move forward with collecting their debts. Many people who filed for bankruptcy are still struggling to get their finances in order, so this option works best when they are sure, they can keep up with payments.

According to FindLaw, another disadvantage is that it can take up to five years to repay all the debts, which can make the proceedings seem long and drawn out compared to Chapter 7. This is because courts rely on disposable income to calculate repayments, which is based on what is left from a person’s income after they pay for necessities.

One of the many reasons that debtors prefer Chapter 13 bankruptcy is that they might be able to hold on to the assets they have, while they get back on their feet. However, note that if this filing falls through, they may not be able to then seek Chapter 7 bankruptcy as a solution for another six years.

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  • David  Alan Ast Photo
    David Alan Ast
    Firm Partner David Alan Ast has more than 25 years of experience helping people throughout northern New Jersey get a fresh start and move forward with their financial lives. He is committed to protecting the rights of his clients seeking debt relief.
  • Robert L. Schmidt Photo
    Robert L. Schmidt
    Firm Partner Robert L. Schmidt earned his Bachelor of Arts in Business Administration and Finance from Stockton State College in 1990. Three years later, he earned his Master’s degree from Rutgers University School of Business in Camden with a major in finance. Robert then acquired his J.D. from James E. Beasley School of Law at Temple University in 1997.
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