Chapter 13 bankruptcies are a type of “debt consolidation” allowing you to reorganize your finances by consolidating your debts into one monthly payment.
Chapter 13, however, should not be confused with other types of debt consolidation programs, such as consolidation loans from a bank or finance company OR credit counseling payment plans.
Benefits of a Chapter 13 Plan: Includes Most Types of Debt: Other types of debt consolidations only allow specific and very limited debts to be consolidated in the payment plan, and don’t usually consolidate important debts, like your mortgage arrears, car payments, tax debt, and child support arrears. All of these debts can be included in a Chapter 13 bankruptcy, consolidating your debt into one low, affordable, monthly payment.
Drastically Reduced Total Amount of Debt: Subject to certain qualifications, a Chapter 13 bankruptcy will allow you to pay as little as 1% of the unsecured debt back and eliminate the other 99%. Your reduction in principal owed allows you to pay your debts off more quickly than you could through other consolidation plans. With other types of consolidation plans, you often have to repay 100% of the principal owed, plus some in interest.
The Force Of Law: The other types of loan consolidations lack the power to dictate what the creditors are entitled to be paid. These programs, especially credit counseling repayment plans, merely “ask” the creditor to lower the interest rates. Forget about lowering the principal balance owed. For instance, credit counseling repayment plans are “voluntary” for your creditors, and any creditor can decide, at any time, to stop participating, regardless of what position this leaves you in.
Bankruptcy law, on the other hand, is Federal law. Creditors are told what to do and how and when to do it. Creditors that fail to comply with Bankruptcy law can be hauled in front of the Bankruptcy Court and punished.
Definite Time Period: Chapter 13 bankruptcy plans are between 3 and 5 years in length. All dischargeable debts are eliminated at the completion of the bankruptcy. The other types of loan consolidation programs allow a possibility that the plans could drag on for years and years without significantly lowering the balances.
No Interest or Late Fees: Upon filing Chapter 13, any debt in existence prior to the filing does not accrue any more late fees, and, in most cases, what little has to be re-paid can be repaid “interest-free”. All of the money you pay toward your unsecured debt will generally be applied toward principal drastically reducing the amount of time it takes you to get out of debt.
The other types of consolidation plans don’t reduce the amount of the debt at all, and, at best, only lower your interest rates somewhat, and then only with respect to the unsecured creditors that participate. The result is that a lot of good, hard-working people, just like you, end up strapped with monthly plan payments far in excess of what you can afford. What good is a plan payment you can’t afford?
Attorney Working in Your Best Interests: Your Chapter 13 attorney has a legal and ethical obligation to represent your best interests. Your attorney’s compliance with his obligations to you are regulated by State law. Thus, in a Chapter 13 bankruptcy, you have the opportunity to have a bankruptcy attorney represent only your interests and you are ensured that your attorney is fighting for your rights. Many debt consolidation programs are private entities, the ones that are not scam operations, sponsored by and controlled by the creditors, and, as such, there are no mechanisms in place to protect you or to look out for your best interests.
Protects Equity: A Chapter 13 bankruptcy does not require you to pledge any collateral in order to consolidate. Many of the other consolidation plans, including home equity loans, require you to risk your home and property, if you can’t afford the monthly payments.
Pays Your Most Important Bills First: A Chapter 13 bankruptcy plan pays off most secured loans first, taxes second, and delays payment of unsecured debts to last. The majority of the initial Chapter 13 payments can be applied towards mortgage and automobile payment defaults. Then, your money goes to pay overdue taxes and other debts. Credit cards and medical bills can be paid after these secured and other priority claims have been paid off. Credit counseling repayment plans, for instance, don’t have the power to delay payments to unsecured creditors, without penalty, or to give preferential treatment to your car or home finance companies.
Debts Are Eliminated If The Creditor Doesn’t File A Proof Of Claim: Each creditor must file a proof of claim with the Bankruptcy Court if they are to be paid during the consolidation. Frequently, not all creditors listed in a Chapter 13 bankruptcy file a proof of claim. As long as you finish the terms of your Chapter 13 debt repayment plan, all unfilled claims of unsecured creditors are eliminated….and this means by paying zero cents on the dollar. In the case of credit counseling repayment plans, a creditor who does not participate is still owed 100% of its debt and 100% of its interest, fees, etc.
Does NOT Put Other Types Of Property In Jeopardy
Many times, the only way to qualify for many of the other types of loan consolidations is to pledge other property you own as collateral, as, for instance, when you pledge you house to get a second or third mortgage to come up with the money to pay off some credit cards or other unsecured debts. Using this example, this puts your house at risk, because, if you can’t make your payments, now, not only can the creditor come after you, the creditor can take your house. The same thing can happen when you give a creditor a second or third lien on your car or truck. In Chapter 13, you can put creditors under control without having to offer up any more of your property as collateral.
Debt management plans are often dangerous attempts to avoid filing bankruptcy when that’s exactly what you should be doing.
Don’t risk your financial future on a plan that is not protected by Federal Law.