Understanding Chapter 13 Bankruptcy: Facts vs. Fiction

If you’re struggling with debt and looking at your options, it’s critical you have the right information about Chapter 13 bankruptcy and what it entails.

You might already know about the two main personal bankruptcy chapters (Chapter 7 and Chapter 13), but perhaps you don’t know how they differ or why you might want to choose a particular one for your situation.

As a bankruptcy lawyer, I see many people come through my door with common misconceptions about filing. And sometimes, wrong assumptions can make it harder for you down the line. So let’s clear up some of the biggest myths about Chapter 13 bankruptcy so you can make informed decisions with confidence.

Myth 1: Chapter 13 Solves All Your Debt Problems Immediately

One of the most common myths is that filing for Chapter 13 bankruptcy will erase all your debts, and instantly. While it’s true that bankruptcy can and should significantly ease your financial burden, Chapter 13 works in a different way than Chapter 7.

Chapter 13 is primarily a debt reorganization. That means with the help of your lawyer and the courts, you work out a plan to pay back a portion of your debts over 3-5 years.

Some debts, like student loans, certain taxes, and child support, typically aren’t discharged in bankruptcy. But usually, dealing with the other debts helps make those a much lighter burden.

Myth 2: You Will Lose Your House and Car

Many people assume they’ll lose their home and car when they file for bankruptcy. This is a common misconception.

Chapter 13 bankruptcy is actually designed to help you keep major assets like your home and car. The repayment plan you set up allows you to catch up on outstanding debts while keeping your property. It’s different from Chapter 7, where there is a risk of losing assets if they exceed certain exemptions.

If you’re looking to keep your house or car, Chapter 13 might be a perfect option for you.

Myth 3: Filing for Bankruptcy Ruins Your Credit Forever

Another widespread myth is that bankruptcy destroys your credit score forever. While it’s true that Chapter 13 bankruptcy will stay on your credit report for seven years and can lower your score initially, it doesn’t mean you’re doomed forever.

In fact, many people start rebuilding their credit during the Chapter 13 repayment period. We offer a ton of resources on rebuilding your credit after a Chapter 13 bankruptcy, and we’ve helped people get back to an excellent score, even after filing.

In addition, we offer a free report called Life after Bankruptcy that helps you rebuild your financial future in other ways, like buying a home, renting an apartment, and getting a new job..

Myth 4: Bankruptcy Means Failure

Many people wrongly believe that needing to file for bankruptcy is an indicator of personal or financial failure.

This couldn’t be further from the truth. Bankruptcy laws were created to give people a chance to recover from financial setbacks. It’s a legal tool that can provide a way out when things don’t go as planned, often due to circumstances beyond your control like medical expenses, divorce, or job loss. In fact, many of the world’s most successful people have leaned on bankruptcy in tough moments.

The moral questions around bankruptcy came up so often early in my career, that I eventually researched the topic. That’s how I wrote our most popular free report, What Does the Bible Say About Debt?

Bankruptcy is simply a new chance, and all of us need that in some way through our lives.

Myth 5: The Process is Too Complicated to Complete Successfully

Finally, there’s the myth that Chapter 13 bankruptcy is too complicated for most people to successfully complete. While it’s not a simple process, that’s exactly why bankruptcy lawyers like myself are here.

However, you should keep in mind that Chapter 13 does come with important rules and deadlines. Without the right attorney, you could make mistakes. It’s important to work with someone:

  • you trust
  • who has good communication, and
  • is dedicated to seeing you all the way through the process.

With strong professional guidance, you can navigate the process, understand the necessary steps, and successfully reach the end of your repayment plan. All you need is the right person in your corner.

Moving Forward with Our Memphis Bankruptcy Lawyers

Understanding what Chapter 13 bankruptcy really involves can help you decide if it’s the best step for you. For some folks, it’s a great way back to financial stability.

Whether you know you want to file Chapter 13 or have a lot of questions, we’re here for you. Our firm offers a free consultation to help you figure out your next steps. We’ll look at your situation and goals and talk with you through all of your options.

And you’ll leave knowing the true facts about Chapter 13, so you can be confident with what you decide.

If you’re struggling with debt and feeling overwhelmed, let’s talk about your options, no strings attached. Just call us today at 901-327-2100 or reach us online 24/7.