If you are overwhelmed by debt and are starting to fall behind on your monthly obligations, you are likely looking for debt relief. Before you decide to use one of the debt relief services you may have seen advertised, you should consider a Chapter 13 bankruptcy. This type of bankruptcy restructures your debt so you are able to pay some or all of it back. The following are a few advantages that a Chapter 13 bankruptcy has over other forms of debt relief.
You're not borrowing money
One popular form of debt relief is a consolidation loan. You borrow enough money to pay off all of your debts, and then you make a single payment each month to one lender. This sounds attractive because a single payment is simple, and it will usually be less than the sum of all of your payments you have now. Unfortunately, lenders will want some security for this type of loan, and if you have a lot of unsecured debt, you will be exchanging unsecured debt for secured debt. A Chapter 13 bankruptcy will mean making a single payment to a trustee, but without borrowing any money.
You're not paying a lump sum
There are debt settlement companies that will claim they can negotiate to reduce your debt. Although they may be able to negotiate some of the late fees, and they may be able to reduce the principle, the catch is that you will have to pay a lump sum to eliminate the debt. Of course, you may not have the money to do this. Another issue is that your creditors do not have to accept any reduction of the principle, interest, or late fees. With a Chapter 13 bankruptcy, they have no choice. You could get some relief with debt settlement but not enough to get the help you need.
More categories of debt can be included
Debt relief companies are more limited in scope than a bankruptcy court. Although there are certain debts that cannot be reduced or eliminated with a bankruptcy, sometimes these debts can be restructured and be included in your payment to the trustee. One example of this is income taxes. If you owe back taxes, you will have to pay them, but a bankruptcy judge may be able to include it with your other debts. Private sector debt settlement companies usually focus on negotiating with credit card companies and similar unsecured lenders.
A Chapter 13 bankruptcy is a form of debt relief that restructures your debt, and then allows you to make monthly payments for a specified amount of time. After this, your bankruptcy is discharged. You will be debt free. A bankruptcy attorney can give you more information to help determine if you qualify.