How a Chapter 13 Can Help Your Finances in the Long-Run

A Chapter 13 can relieve the stress of constant collection activity and allow you to build a history of regular payments, leading ultimately to a stable financial position and discharge of your remaining debts

Many Alabamans are worried when they think about filing for bankruptcy protection. They hear it is expensive. That it will damage their credit score and that it will stay on their credit report for years. All of that may be true, but the extent any of that will seriously affect you may vary greatly.

Serious financial difficulty

Bankruptcy is not a step taken lightly. It should be only considered if you are faced with substantial, overwhelming debt, and have no manageable way in which to pay off that debt. Many people mistakenly believe that bankruptcy is typically due to profligate spending and poor discipline with money.

In reality, a large number of those in Alabama who do file, do so for reasons that are often beyond their control. They may have developed an illness, medical condition, or injury that has both generated tremendous medical bills but may also have caused them to lose their ability to work and as a result, their income.

This can have devastating consequence, as their bills mount and they desperately move money from one account to another, attempting to stave off collections notices, as delinquencies and late fees mount. They may use credit cards to pay bills and then use cash advance from one card to pay off the charges on another.

All of this adds to the slow-building disaster and the inevitable day of reckoning, when there is no money left in a bank account, the credit cards are maxed out and lenders begin to foreclose on a residence or repossess vehicles.

And you're worried about a credit score?

At this point, a bankruptcy may be your only option. Yes, it may lower your credit score, but much of the damage has already been done. Late fees, missing payments for months, and exhaustion of your credit have already damaged your credit rating.

Sure, someone may offer your credit, but do you really want to take on even more debt at an exorbitant interest rate in this condition? Your creditors can read your credit report and they know the poor condition your finances have reached. They may be unhappy to see your file bankruptcy, but that is the least of your worries.

How bankruptcy will help

Bankruptcy stops the collection activity, ending the never-ending phone calls and dunning letters. It prevents repossession of a vehicle and can delay or stop a foreclosure. With a Chapter 13 filing, you can have up to five years to reorganize your finances, paying mortgage arrears though the plan.

It can also allow you to discharge much of your unsecured debt, such as those massive medical bills or credit card debt. By eliminating much of this debt, you can focus your remaining income on your necessities and secured debts, potentially allowing you to keep your home and vehicles.

It may not be easy, but it will be worth it

None of this will be easy. You may have to live a relatively frugal existence and maintain strict adherence to your Chapter 13 plan, which will function much like a budget for the duration of the plan. As long as you have the steady income to maintain your plan payments to the trustee, you should be able to successfully complete the plan, discharge your debts and emerge in much better financial condition than when you began.

In addition, you will have five years of a good payment history, and you won't be saddled any longer with piles of high-interest credit cards and loans. While the bankruptcy may remain on your credit history for a time, your subsequent payment history is likely to allow for an improving credit rating, and it may happen far more quickly than if you have spent years struggling with late payments and the stress of constant, aggressive collections harassment.

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