Chapter 13, Debt Consolidation Plan
Chapter 13 is a court authorized debt consolidation plan designed to provide reasonable repayment terms and court protection for your assets such as a home or vehicle. The purpose of the program is to consolidate and prioritize your debts, provide standardized repayment terms, improve your credit and provide protection from your creditors.
Through the Chapter 13 debt reorganization plan we can:
- Stop a home foreclosure
- Remove a second mortgage or home equity loan
- Stop a vehicle repossession or recover a vehicle that has been taken as long as it has not been sold at auction
- Prevent utility shut-offs
- Stop a judgment or wage garnishment from occurring
- End all creditor calls and harassment
The plan simply requires that you make your “best effort” to pay back your debts over a 36 – 60 month time period. Whatever unsecured debts are not paid at the end of that time period are eliminated or discharged. We develop a repayment plan taking into consideration all of your debts. We can prioritize certain debts (i.e. getting caught up on a first mortgage) that will get paid through the plan before other bills (i.e. credit cards).
This Chapter 13 plan is then presented to your creditors and the Chapter 13 Trustee for review. The approval process typically takes about 2 -3 months. Our job is to provide you with the most favorable repayment terms possible. That is where experience counts. Because our bankruptcy law firm specializes in Chapter 7 and Chapter 13 law, we understand all of the available options and can put together a successful Chapter 13 plan to put you in the best financial position after the repayment process as completed.
How does Chapter 13 differ from other debt management programs?
There are several key differences between a Chapter 13 plan and other debt management program. There are advantages and disadvantages to both:
Advantages of a Chapter 13:
- The program is set up for a finite time period (36 – 60 months). Whatever is not paid is legally eliminated. This cannot be guaranteed by a debt management agency.
- All repayment on unsecured debt and arrearages is at 0% interest with no continued late penalties. This means that every dollar you pay in goes straight to the principal debt. In most debt management programs repayment terms and settlement to up to negotiations with individual creditors with no leverage to force any certain terms.
- Debts discharged in bankruptcy do not convert to taxable “income.” Conversely, debts forgiven pursuant to a debt management program may result in receiving a 1099 form from the creditor and being taxed on the “forgiven” debt.
- All creditors are bound to the terms of a Chapter 13 plan. This means no creditor calls while you are in the program, your property is legally protected and no actions can be taken against you (judgments, etc.).
- The Chapter 13 program provides timely, consistent monthly payments to your creditors. Since you are paying principal debt rather than interest fees, your debt-to-income ratio improves with each payment. Both of these factors will have a positive impact on your credit and credit score over the course of the program.
Downside of a Chapter 13
The Chapter 13 is court process and therefore requires certain reporting and steps. For instance you are required to provide a copy of your annual tax returns to the Trustee. Also, if you need to incur debt over $1,000 while you are in the program we would need to file a motion with the court.
While these factors can be a nuisance, in our estimation the pros far outweigh the cons for the peace of mind that comes from an organized plan to repay your debts and begin a fresh financial future.
We offer free in-office or phone consultations to review your personal circumstances, analyze your situation and advise you on the best course of action. We specialize in bankruptcy law, debt resolution, foreclosure prevention and credit repair. We have offices in
