Chapter 13 vs other


Chapter 13 bankruptcy is the most powerful debt management option because it is backed by federal law; it’s backed by the U.S. Bankruptcy Code.

Chapter 13 Bankruptcy in a Nutshell
Chapter 13 bankruptcy is a debt consolidation plan which allows a debtor to restructure his debt and repay it over a three to five year period. Chapter 13 bankruptcy is unique and differs from consolidation loans and credit counseling programs in that it is the only option that has the power of the Bankruptcy Code behind it.

Chapter 13 bankruptcy should not be confused with other debt consolidation and debt management options. A Chapter 13 bankruptcy gives you power that other debt consolidation and debt management options simply don’t provide.

· The power to STOP foreclosures and repossessions
· The power to STOP harassing phone calls from creditors and collection agencies
· The power to REPAY your debts over a three to five year period
· The power to REDUCE THE AMOUNT OWED OR TO COMPLETELY ELIMINATE most of your unsecured debts
· The power to ELIMINATE wholly unsecured junior mortgages on your real property
· The power to REDUCE the amount owed on certain secured debts to the present value of the collateral securing them
· The power to REDUCE the interest rate on certain debts
· The power to STOP the accrual of interest and penalties on certain debts
· The power to STOP aging reports on delinquent accounts

This is just a basic overview of the benefits of filing a Chapter 13 bankruptcy. Now let’s explore a few of these advantages more closely.

· THE AUTOMATIC STAY – The automatic stay is amazingly powerful. The automatic stay becomes effective the instant you file bankruptcy. It prevents your creditors from making collection efforts against you and your property. It prevents them from:
o Calling you;
o Writing to you;
o Repossessing personal property;
o Foreclosing on real estate;
o Suspending your driver’s license or professional licenses;
o Filing lawsuits against your;
o Prosecuting lawsuit which have already been filed against you;
o Garnishing your wages; and
o Levying on your bank accounts or other property.

No other debt consolidation or debt management program gives you the power and protections of the automatic stay in bankruptcy. If you choose to utilize another debt consolidation or debt management options, your creditors will continue to call you and write to you and to pursue all possible collection efforts against you.

· GET ALL OF YOUR DEBTS UNDER CONTROL – Filing a Chapter 13 bankruptcy enables you to get all of your debts under control. When you file a Chapter 13 bankruptcy, you must submit to the court a Chapter 13 plan which sets forth your proposal for how you will repay your debts. The Bankruptcy Code allows you to repay your debts according to their priority as follows:
o Administrative claims;
o Secured claims;
o Unsecured priority claims;
o Unsecured claims.

Debt consolidation and credit counseling services do not allow you to prioritize your debts so that the most important debts are paid first. Moreover, they don’t have the authority to allow you to delay payments to unsecured creditors without placing you in jeopardy of being hit with late fees and other penalties.

When you utilize debt consolidation or other debt management options some of your most important debts may be excluded from the consolidation plan. This means that you will still have to pay these bills each month. The following debts are often excluded from non-bankruptcy debt consolidation plans:

o Mortgage arrearages;
o Auto loans;
o Child support and alimony arrearages; and
o Tax debts.

Moreover, it is not uncommon for credit counseling services to only help you with credit card debt. If you have a mortgage, car loan, medical bills, or any other type of debt, you will be left to find a solution for managing those debts on your own.

· COMPLETELY ELIMINATE CERTAIN DEBTS – The Bankruptcy Code allows you to eliminate certain unsecured debts completely. If you are eligible to file a Chapter 7 case, your credit card bills, medical bills, personal loans, and most other unsecured debts will be discharged. If you file a Chapter 13 case, some of these debts may also be discharged. Whether they will be discharged depends on how much money you can afford to pay into your Chapter 13 plan. If any of your unsecured debts remain unpaid at the conclusion of your Chapter 13 case, they will be discharged.

Other debt consolidation plans require you to pay 100% of what you owe and interest will continue to accrue until the debt is paid in full. This means that you’ll shell out a lot more money to pay the debts off than would in a Chapter 13 bankruptcy.

· AFFORDS YOU VARIOUS PROTECTION AND POWERS UNDER THE LAW – Filing bankruptcy is your legal right pursuant to the U.S. Bankruptcy Code. When you file bankruptcy, you are expected to comply with all rules and regulations in exchange for a fresh start. But you are not the only one who must follow the rules. Your creditors must comply with all the rules and regulations, too. And if a creditor fails to follow those rules and regulations, the Bankruptcy Code gives the bankruptcy judge the power to punish that creditor.

If you use a debt consolidation program or credit counseling service, there is absolutely nothing to stop your creditors from continuing to harass you for the money you owe. There is nothing that requires them to even agree to a workout plan!

ELIMINATE DEBTS WHERE NO PROOF OF CLAIM FILED – The Bankruptcy Code requires all creditors who wish to participate in and be paid through the Chapter 13 plan to file a Proof of Claim. The Proof of Claim must be filed by a certain date and must set forth the nature of the debt, the amount of the debt, the interest rate on the debt, and whether the debt is secured, priority unsecured, or unsecured. If a creditor fails to file a Proof of Claim within the time frame allowed by law or files a Proof of Claim which is disallowed by the bankruptcy court, it will be prohibited from participating in the bankruptcy and that debt will be discharged.
· NO INTEREST OR LATE FEES – Additionally, the Bankruptcy Code prohibits certain creditors from charging interest and fees while your case is pending. No other debt consolidation or debt management program has the authority to stop your creditors from charging interest and penalties.

When you go to a debt consolidation or credit counseling service, they can try to negotiate with your creditors to reduce or eliminate interest, but your creditors don’t have to agree to do it. Without the elimination or reduction of interest, it’s quite possible that you will end up with payments you cannot afford.

· PROTECTS OTHER PROPERTY FROM THE REACH OF CREDITORS – When you file a Chapter 13 bankruptcy, all of your property is protected from the reach of creditors. You are not required to pledge property as collateral in exchange for receiving the various powers and protections afforded by the Bankruptcy Code.

When you get a debt consolidation loan, you may be required to pledge your home, car, or other property as collateral. Then if you default, you are in jeopardy of losing that property.

· CLOSURE – When you file a Chapter 13 case, you know when your case will end. Assuming that you are able to complete your Chapter 13 plan as originally written and don’t need to modify it because of increased expenses or a decrease in income, you know that it will last three to five years. You also know that at the conclusion of your case, all dischargeable debts will be eliminated.

When you use a debt consolidation or credit counseling service, there is no guarantee that your debts will be paid off when they tell you they will be. Many times accounts are sold multiple times and consumers do not get credit for payments they have made. This means that your repayment plan could drag on indefinitely and if payments are not properly credited, your credit could be further damaged.

· REPRESENTATION BY A QUALIFIED ATTORNEY – At Bankruptcy Professionals, we recommend that every debtor contemplating Chapter 13 bankruptcy hire a qualified bankruptcy attorney. By hiring a bankruptcy attorney, you significantly increase the odds that your Chapter 13 plan will be confirmed and that you will receive a discharge in three to five years.

Our bankruptcy attorneys (and every attorney in the country) are obligated to represent each client competently and zealously. Every state has rules and regulations which govern the conduct of attorneys in their representation of clients and our attorneys take these rules and regulations very seriously. The bankruptcy attorneys at Bankruptcy Professionals know how important obtaining a good outcome is to you and they will work diligently to help you get it. They truly have your best interests at heart.

If you have questions about Chapter 13 (or Chapter 7) bankruptcy, give us a call today. Our bankruptcy attorney will explain how bankruptcy works and will advise of which Chapter is best for you.

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