Some financial experts tell people to work with a debt counseling company rather than file for chapter 13 bankruptcy, citing the fact that a bankruptcy filing can remain on your credit report for 7 to 10 years. While debt counseling may make sense in a few scenarios, here are two reasons chapter 13 bankruptcy is the better option.
Debts Will Be Discharged
One of the best reasons why filing for chapter 13 trumps using a debt counselor is that most of your bills will be discharged at the conclusion of your case if they're not paid in full. For instance, if you have $10,000 in credit card debt and you pay off $7,000 of it in your chapter 13 case, the remaining $3,000 will be discharged and you won't have to pay it after your case is closed.
That's not the case with debt counseling plans. Even though the creditor may agree to waive certain fees or stop charging interest on your account, you are typically required to pay the entire principal in full. If you fail to do that within the time period you are working with the credit counseling company, the creditor would be perfectly within its rights to continue collecting on the debt you owe.
Chapter 13 offers a true financial fresh start. However, it should be noted that not all debts are dischargeable through bankruptcy (e.g. student loans, child support). You would still be responsible for paying on these debts after your bankruptcy ends. With all of your other eligible debts removed, though, you should have plenty of money available to take care of those obligations.
Your Entire Payment Goes Towards Debts
Another advantage chapter 13 has over debt counseling is that 100 percent of your monthly payment goes towards paying off your bills. Debt counseling companies get paid in one of two ways: either the creditors pay them a rebate on the payments they send in or the debt counseling company charges debtors a fee to manage their accounts. In either case, you may be paying extra money into the program that could be better spend on your household or paying down your debts.
While there is a fee to file chapter 13 (currently $310), there are no monthly fees that must be accounted for. This ensures your entire payment is used to reduce your debt, which can help you get through the program faster.
For more information about why chapter 13 may be the better choice for you or help with filing a case, contact an attorney.