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Bankruptcy 101: The Advantages and Disadvantages of a Chapter 13 Bankruptcy

 Posted on February 15, 2019 in Bankruptcy

If you are an individual or small business owner who is struggling to stay afloat financially, a Chapter 13 bankruptcy may be able to help you restructure your finances and pay off debt without losing assets. This blog will look at the benefits of a Chapter 13 filing.


Chapter 13 bankruptcy is available to individuals and sole proprietors who can include their business debts in a repayment plan. Unlike other options, there are debt limits under this chapter, which are (as of 2019) $394,725 for unsecured debt and $1,184,200 for secured debt. Chapter 13 isnot an option for partnerships, corporations, LLCs, and joint ventures, so you will need to consider a different chapter if your business is organized under one of those entities.

Chapter 13 Advantages

Chapter 13 is sometimes referred to as the 'wage earner's bankruptcy' because one of the key criteria for approval is a steady income. You repay most, if not all of your debt over a three-to-five-year period in exchange for keeping your assets. Your trustee assumes responsibility for distributing payments to your creditors so you don't have to directly contact them. Chapter 13 has a number of advantages, which include:

  • Filing for Chapter 13 is less expensive or complicated than filing for Chapter 11.

  • Stop home foreclosure proceedings and cure delinquent mortgage payments over time.

  • Prevent a car repossession or recover a car that was very recently repossessed.

  • Restructure tax debt and some secured debts, such as a car loan, to possibly lower the payment.

  • Third parties, such as guarantors or co-signers, are protected from creditor collection actions for the duration of the three-to-five-year period.

  • You can apply for a hardship discharge if issues like job loss, illness, or disability prevent you from completing your plan.

Chapter 13 Disadvantages

As with any bankruptcy filing, there may be some drawbacks to selecting a Chapter 13. Your bankruptcy attorney will help you plot the best course of action, so the downsides mentioned below may not be as negative as other options:

  • Most businesses cannot seek bankruptcy protection under Chapter 13. It is only available to sole proprietors filing as individuals.

  • Filing for Chapter 13 is more expensive than filing for Chapter 7 because a Chapter 13 lasts three to five years and requires more work, while a Chapter 7 lasts about four months.

  • Debt limitations are lower than those in Chapter 11, making it unavailable to those with higher amounts of secured and unsecured debt.

  • Chapter 13 plans are limited to five years, making it difficult for those who may need more time for a sustainable payment plan.

Contact a North Carolina Bankruptcy Attorney

If you need to speak to an experienced bankruptcy attorney, contact Blossom Law PLLC, today. Attorney Blossom takes a comprehensive and compassionate approach toward those who are struggling financially and will recommend the best debt relief option for your situation. For more information, call 704-256-7766.

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