Chapter 13 – Debt Consolidation

If your income level is too high, you have substantial assets, or Chapter 7 is not a viable or attractive option, Chapter 13 may be a viable alternative. A Chapter 13 plan permits individuals who have a steady source of income to pay part or all of their debts under protection of the bankruptcy court. If you file Chapter 13, you file a petition and a plan with the bankruptcy court. The bankruptcy law requires that the payments you make through the plan to unsecured creditors have a value of at least what the creditors would have received if you had chosen to file a Chapter 7 case.

Advantages of Chapter 13

1. There are certain debts that are dischargeable in a Chapter 13 that are not dischargeable in a Chapter 7.
2. If your income is reduced, you may be able to modify your plan or convert to Chapter 7.
3. You are protected by the automatic stay.
4. You can keep assets you may not have otherwise been able to keep in a Chapter 7.
5. You may be able to hold onto your house if behind in payments. You can pay the “arrears” through your Chapter 13 plan over 3-5 years.
6. You may be able to eliminate (strip) the second mortgage on your home if unsecured.
7. You may be able to “cram down” a car purchased over 3 years ago. This will allow you to pay back the fair market value of the car as opposed to a larger loan balance.
8. Your credit card bills are “consolidated” into one payment, and the principal may be reduced depending on the circumstances.

Eligibility for Chapter 13

Only an individual or a married couple, not a corporation or partnership, can file a Chapter 13. However, an individual who owns a corporation may be able to file Chapter 13. If you have regular income from self-employment, a pension, Social Security, unemployment insurance, welfare, union benefits, disability insurance, alimony, odd jobs, income from family members, or child support, a Chapter 13 plan can be used. Many small businesses--those owned by individuals--can file and obtain the benefits of Chapter 13.

Creditor Collection

Once your case is filed, you are immediately protected by the automatic stay. The automatic stay serves as a type of injunction or restraining order against creditors who are attempting to collect debts. Creditors cannot stop you from exercising your right to file under Chapter 13. Creditors will sometimes tell you they "will not accept the filing" or they "will prevent the court from accepting the filing." Don't believe these statements. It is important to note that if you hade a case pending in the last year, the automatic stay can expire in 30 days. Your attorney may be able to extend that stay by filing a motion with the court. The automatic stay will also not protect you if you had 2 prior cases pending in the last year.

Keeping your assets

A major advantage of Chapter 13 over Chapter 7, is that you can keep assets you might not be able to keep under Chapter 7. This may include rental property, additional vehicles, a business, boat, or other “non-exempt” assets.

Timetable: The usual time frame is 36-60 months. However, in certain instances, you can pay off your plan sooner if you wish.

Plan Payments

Plan payments are made to a court appointed Chapter 13 Trustee, who will then disburse your payment to creditors pursuant to your Chapter 13 plan. You can decide to have your plan payments deducted directly out of your paycheck if you decide. If you fail to make a substantial number of your payments to the trustee, he will ask the

judge to dismiss your case. If the case is dismissed, the collection calls will begin again, and you may have your car, for example, repossessed or your home foreclosed upon. Stay in touch with your attorney if you run into problems, they can often suggest a number of solutions that might help you. What we recommend will depend on your circumstances. In some instances you can modify your plan or immediately file a new case once your old 13 plan is dismissed and obtain an additional 36 to 60 months to pay on a new plan. Perhaps Chapter 7 might be an option to consider. Don't panic--call your lawyer for a conference to review all your options.

Credit Counseling

The same requirement to take credit counseling and a financial management course in a Chapter 7 also applies in Chapter 13.

At American Debt Relief, we believe that no one should have to deal with the burden of debt by themselves. Our firm is here to provide the legal assistance and the individual attention that will help get your financial future back on the right track. Contact Attorney Leonard J. Ackerman today for a Free Consultation!