Chapter 13 Compared To Traditional Debt Consolidations
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Chapter 13 Compared To Other Alternatives:
Chapter 13 bankruptcies are a type of "debt consolidation" plan which allows you to reorganize your finances by consolidating your debts into one monthly payment and repay some portion of the of the debt over a three to five year period. Chapter 13 bankruptcy should not be confused with other types of debt consolidation programs....such a consolidation loans from a bank or finance company OR credit counseling payment plans. Only Chapter 13 bankruptcy has the power of the Federal Bankruptcy Code behind it, and provides all of these advantages for people seeking debt relief:
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The All Powerful Automatic Stay: When you file a Chapter 13 bankruptcy, you receive immediate protection by what is called "the automatic stay". The automatic stay is a Court Order issued immediately and effective immediately when you file bankruptcy. It prohibits any further collection activity against you and your property. The stay has the power to stop foreclosures, repossessions, garnishments, license suspensions, lawsuits, and creditor harassment.
Other types of debt consolidations don't have any stay provisions; there is no Court Order protecting you; and your other creditors can continue calling and writing you and to pursue all possible collection efforts against you.
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Put More Types of Debt Under Control: Filing a Chapter 13 bankruptcy allows you to almost all of your debts included and put under control. It will consolidate your debt into one low, affordable, monthly payment. This includes mortgages, car and truck loans, taxes, past-due child support and alimony, medical bills, personal loans, and credit card debts.
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. The one exception is where you make the risky move of re-financing your mortgage. In the case of credit counseling companies, in most cases, the only debts dealt with at all are credit card debts, and then only if the credit card companies play ball.
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Reduce Debts By Up To 100%: We're talking about credit card debts, medical bills, personal loans and other 'dischargeable' unsecured debts. How much the reduction is depends upon how much money you can afford to pay into your Chapter 13 plan. ALL the other "non-bankruptcy" consolidation plans require that you repay 100% of the principal owed, plus some or all of the interest.
Only the bankruptcy laws provide for actually debt 'principal' reduction, and any "non-bankruptcy" ad that promises "debt reduction" is only talking, at best, about interest, not principal, and trying to trick you.
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Gives You The Force Of Law: Bankruptcy relief is your legal right pursuant to Federal law. Your creditors are required to comply with all the rules and regulations. Creditors that fail to comply with Bankruptcy law can be brought before the Bankruptcy Court Judge and sanctioned for their non-compliance.
Credit counseling programs, debt workouts ...on the other hand...lack the power of law to dictate what the creditors are entitled to be paid. These programs merely "ask" the creditor to take less than the creditor is entitled to per the contract.
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A Definite Time Period, And Then, You're Done: Chapter 13 bankruptcies are between 3 and 5 years in length. you know when your case will be over. 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, leaving you in debt and damaging your credit record.
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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 can be repaid "interest-free". Again, we are talking about credit cards, medical bills, personal loans, and other unsecured debts, this time, regardless of whether or not they are dischargeable. 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 only exception is for 'secured' debts, which are debts for which you have pledged something as collateral, and even with some of these secured debts, the amount and rate of interest can be reduced significantly.
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?
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Attorney Working In Your Best Interests: Every debtor contemplating bankruptcy should consider hiring an experienced bankruptcy attorney. 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. Many debt consolidation programs are private entities sponsored by and controlled by the creditors, and there are no mechanisms in place to protect you or to look out for your best interests.
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Protects Equity: Your property is protected from creditors. A Chapter 13 bankruptcy does not require you to pledge any collateral in order to consolidate.
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Pays Your Most Important Bills First: A Chapter 13 bankruptcy plan pays off most secured loans first, taxes and co-signed debts second, and delays payment of unsecured debts to last. The majority of the initial Chapter 13 payments can be applied towards mortgage payments, and mortgage/automobile payment defaults. Then, your money goes to pay overdue taxes and co-signed debts. Credit cards and medical bills (only due if you fail the Means Test) only get paid after these secured and other priority claims have been paid off.
Credit counseling repayment plans don't have the power to delay payments to unsecured creditors or to give preferential treatment to your car or home finance companies.
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Debts Are Eliminated If The Creditor Doesn't File A Proof Of Claim: The Bankruptcy Code requires that each creditor must file a proof of claim with the Bankruptcy Court if they wish to be paid during the consolidation. Frequently, not all creditors listed in a Chapter 13 bankruptcy file a proof of claim by the due date. 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., and can go right on harassing your for payment, whether you can afford it or not.
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Does NOT Put Other Types Of Property In Jeopardy: In Chapter 13, all of your property is protected from the reach of creditors. You are not going to have to offer up any more of your property as collateral to receive the benefit of filing a Chapter 13 bankruptcy.
With the other "non-bankruptcy" types of consolidations, many times, the only way to qualify for a debt consolidation loan or plan 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.
If you really want to avoid bankruptcy, then debt consolidation, while not the best choice in our opinion, should be limited to those companies that appear to be reputable. For more information go to ConsumerAffairs.com.
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