your options for getting out from under debt

The Pros And Cons Of Five Year Chapter 13 Repayment Plans

When you file for Chapter 13 bankruptcy relief, you generally choose either a three-year repayment of qualified debts or a five-year term. Both options have their pros and cons. To help you decide if the five-year term is right for you, here are a few of the most important pros and cons of this longer commitment. 

The Pros of Five-Year Plans

The primary reason most people choose the longer payment plan is to reduce monthly payments. Stretching out eligible debts means less due each month. Because your payment amount is designed to maximize what creditors receive and leave only a small margin for error, it's often good to commit to the least amount each month. This helps, in particular, if your financial situation takes a turn for the worse later. 

The lower payment also means debtors can reaffirm more secured loans and protect more assets. Rather than having to choose between paying your mortgage or your car loan, you may be able to manage both — including paying off selected arrears — with a lower debt repayment amount. 

Finally, anyone hesitant about the ethical implications of declaring bankruptcy and receiving the discharge of their debts may feel better by using the longer payment term. You will end up paying back more of your debt in most cases. This could ease your conscience and make filing for relief easier. 

The Cons of Five-Year Plans

No one can foretell the future, so committing to the longest repayment term and not exiting your bankruptcy case for five years is sometimes a risk. Your finances may change or you may need to put some life changes on hold in the future. It's difficult enough to plan for the next three years, but planning for five years could feel overwhelming. 

As mentioned, the five-year plan also results in paying back more of your debt than the shorter term. This may seem counterintuitive since monthly payments may be lower, but it's why high-income debtors must use the longer term. So if you want to rid yourself of the highest amount of dischargeable debt, three years is the way to go. 

Where to Start

There is no one right answer to which repayment term you should choose. It's a decision you must make with trusted legal assistance and a good understanding of the factors in your particular case. Start by meeting with a Chapter 13 bankruptcy lawyer in your state such as Ricardo B. Casas.