In a nutshell, Chapter 13 is basically a court ordered debt repayment plan. An individual will only make one consolidated payment per month to the bankruptcy trustee assigned to your case. In turn, the bankruptcy trustee will then make payments to your individual creditors.
Your monthly plan payment is based on your income and expenses. This means that many filers will have a low monthly payment. The policy behind a Chapter 13 Plan is to allow an individual to pay what they can. After your completion of the payment plan any remaining qualifying debts are discharged.
In other words, your creditors may only receive pennies on the dollar while any remaining unpaid balances are discharged upon the successful completion of your payment plan.
If you are considering debt settlement or debt consolidation, I recommend that you also review your bankruptcy options. Often times you may obtain a better result through filing bankruptcy. Please call me to schedule an appointment at (610) 935-5555 and I will be glad to discusses the benefits and pitfalls of bankruptcy, debt settlement and debt consolidation.
Top Three Reasons to File Chapter 13:
Stop Foreclosure: This type of bankruptcy will stay a home foreclosure and prevent a sheriff's sale. Specifically, the bankruptcy laws let you pay your mortgage arrears over a maximum period of 60 months allowing you to become current on your mortgage loan. In a sense, your repayment plan is a court ordered loan modification imposed on your mortgage lender.
Pay Off Debt Faster: Even medium and high income earners may benefit. For example, during the debt repayment period your creditors cannot charge you interest and penalties. Your payment will go directly toward paying off principal (minus any administrative fees). This will allow you to pay off your debts much faster than on your own, or through a debt consolidation plan.
Pay Less Than You Owe: In many cases, individuals are able to only pay pennies on the dollar on the amount that they owe to their creditors. This is because the amount individuals must pay into the Repayment Plan is based on their income minus expenses. In other words, a bankruptcy filer is only required to pay into the plan the amount calculated as their disposable income.
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