I like to think of a Chapter 13 Bankruptcy like a government sponsored debt consolidation program. In fact, if this is what a Chapter 13 Bankruptcy were called, far more Americans would turn to Chapter 13 Bankruptcy for relief as opposed to being stuck in an endless debt consolidation program through some company. The advantages of a Chapter 13 far outweigh any debt consolidation program out there.
Chapter 13 Bankruptcy is a repayment program. Yes, you make payments back to your creditors, but through a Chapter 13 trustee, who collects your payments and then disburses them to your creditors based on a plan that gets approved by the court. The three biggest advantages of a Chapter 13 Bankruptcy is 1) any debt not paid off gets discharged, 2) any debt discharged is not taxable to you, and 3) creditors are bound to the Chapter 13 plan and cannot harass you while you are in the plan.
The duration of a Chapter 13 plan can be 3 years or 5 years or anything in between. However, it cannot be more than 5 years or less than 3 years (unless you pay all claims in full).
Credit wise, I think a Chapter 13 Bankruptcy looks worse on your credit than a Chapter 7 Bankruptcy. Why is this? Because in a Chapter 7 Bankruptcy you get your discharge much sooner than you would if you do a Chapter 13 Bankruptcy. You say so what? Well, future lenders want to know if you are debt free to gauge your ability to repay a future loan. People get too caught up in thinking future lenders care whether you pay back other creditors. What future lenders really want to know is are you going to pay back us if we lend you this money?
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