What is Chapter 13 Bankruptcy?
A Chapter 13 Bankruptcy is basically a repayment plan, kind of like a debt consolidation, but with some big advantages over a normal consolidation loan. The idea is that you are going to pay back some portion of the debt you owe over 3-5 years. The amount you have to pay will be determined by either your assets or your income. In many cases people only have to pay a fraction of the total amount they owe. All of your debts are usually included in the Chapter 13 repayment plan and it simplifies things so you only have one monthly payment. All of your unsecured debts – like credit cards and medical bills – will be paid with zero interest, and some secured debts – like car loans – can be “crammed-down” so that you pay a much lower interest rate and you may even pay less than the outstanding balance you owe. A chapter 13 bankruptcy can also stop a repossession or foreclosure, and force the lender let you keep the car and/or house while you pay the arrears in the Chapter 13 plan.
Is Chapter 13 Bankruptcy Right for You?
If you are behind in payments on your house or car or you’re facing a foreclosure or repossession, then a Chapter 13 Bankruptcy might be the best option for you. Also, if you want to file bankruptcy but can’t qualify for a Chapter 7, a Chapter 13 can be a great option to wipe out all that debt with a much smaller payment than you’re currently making on all the debts individually.
Pros of Chapter 13 Bankruptcy
- Stop all collections activity – no more harassing phone calls, text messages, email, and mail
- Stops foreclosure and repossession and lets you keep your house and your car and your stuff
- Wipes out all your debt with one easy monthly payment
- You may only have to pay a fraction of the total amount you actually owe
- All unsecured debts – like credit cards and medical bills – are paid off at 0% interest
- You can reduce the interest rate on your car loans
- You can potentially “cram-down” your car loan and pay only what the car is worth
- You can qualify for a home loan after 12 months of successful payments in your Chapter 13 plan
- Sets you on the road to debt freedom – all the debt is gone in 3-5 years
Cons of Chapter 13 Bankruptcy
- You have to continue to make the monthly payment for 3-5 years before you receive your discharge
- If you stop making your payments your case can get dismissed and you will not receive your discharge
- You have to obtain court approval for major transactions dealing with houses or cars during your Chapter 13 case
Chapter 13 Bankruptcy Benefits
The Chapter 13 Plan can be extremely beneficial for several reasons. First, it will eliminate the interest on all unsecured debts paid through the plan. Imagine those 15-20% credit cards going to 0% interest! For secured debts, like car loans, we can reduce the interest rate to about 5%. Second, it provides a way to pay off past due amounts (arrears) on your house or car over 5 years. This allows debtors to retain their homes and vehicles – as long as the minimum payments can be made on time during the course of bankruptcy. Chapter 13 also stops collection agencies from contacting you during your period of bankruptcy – beginning the day you file. Chapter 13 will immediately stop a foreclosure or repossession, allowing you to maintain payments once your debt repayment strategy has been worked out.
How it Works
First we will propose a Chapter 13 Plan which tells the bankruptcy court the amount of monthly payment you plan to make and how each creditor is to be treated. You will go ahead and start making these monthly payments immediately. Someone called the Chapter 13 trustee will review the plan and either object to it or recommend that it be confirmed (approved). The Chapter 13 trustee will usually object at least once, and then we negotiate to get the best terms we can. Once your Chapter 13 plan is confirmed, you simply continue to make the single monthly payment to the trustee and the trustee will relay the payments to the proper creditors each month. Once you get to the end of the plan, any debt that remains unpaid will be discharged, and you are debt FREE!
If you’re overwhelmed by debt, always talk to an attorney. An attorney is your advocate and has an ethical duty to help you. Attorneys are far more knowledgeable about bankruptcy and debt collection than non-attorneys and there are lots of scam artists out there that just want your money. We frequently have clients who have gone through “debt consolidation” or “debt help” programs and paid thousands of dollars but still owe their original debts! Once you’ve set an appointment for a consultation, we will gather all the information we need form you and then spend an hour with you, FOR FREE, and go over all your options. If you decide on bankruptcy, we will begin preparing your bankruptcy petition and we will take care of everything. All you need to do is take a required credit counseling course and then appear for what is called your “341 meeting” about a month after we file your case. Your 341 meeting is an opportunity for the bankruptcy trustee to confirm the accuracy of your bankruptcy petition and usually only lasts about 5-15 minutes. Once that is complete we will work to get your Chapter 13 plan confirmed, and then you just keep making your payments until the plan ends and you have achieved debt freedom!
If you’d like more information, please don’t hesitate to give us a call. We are experienced and knowledgeable about bankruptcy and all types of debt and can help advise you based upon your unique situation. Pick up the phone and let’s chat about the option that’s right for you.