Chapter 13 Bankruptcy, also commonly referred to as "Debt Consolidation", "Bill Consolidation" or a "Wage Earner Plan", is an alternative to "straight bankruptcy" or Chapter 7. As the name implies, Chapter 13 Plans are "debt consolidation plans" for "wage earners". Chapter 13 does not invole a loan, however, all debts are consolidated into a single payment to be made to a Chapter 13 Trustee who then sends each creditor their payment.
Why choose Chapter 13 instead of Chapter 7?
Chapter 13 is unique in that it allows debtors to "cure" or catch up on past due house payments, car payments, and other payments on "secured" debts over time. For example, if the motgage company is in the process of foreclosing on a home loan because the borrower is several months behind and cannot bring the mortgage completely current all at once, filing Capter 13 would stop or "stay" the foreclosure and the borrower would be able to spread the repayment of all past due amounts over a 36 to 60 month Chapter 13 Plan period and keep the property...whether the mortgage company likes it or not! Furthermore, certain "non-dischargeable" debts such as delinquent IRS taxes may be repaid over time through a Chapter 13 Plan. Additionally, some debtors do not qualify for Chapter 7 and must file Chapter 13 instead.
How do my creditors get paid after I file a Chapter 13 Plan?
After you file Chapter 13 and your Chapter 13 Plan, all payments are made to the Chapter 13 Trustee appointed to your case. You do not pay your creditors directly anymore. The Chapter 13 Trustee will send a "wage order" to your employer directing your employer to withhold your Chapter 13 Plan payment from your paycheck and to send the money to the Trustee's office for disbursement to creditors pursuant to the Chapter 13 Plan. The Trustee is a very responsible person who has been appointed by the United States Bankruptcy Court to receive, disburse, and account for every dollar paid into and disbursed pursuant to a Chapter 13 Plan. A Chapter 13 "wage order" is not the same thing as a "wage garnishment", although it may seem like it. The main difference between the Chapter 13 "wage order" and a "wage garnishment" is that a wage garnishment is a deduction of up to 25% of your paycheck for the benefit of a single creditor who first obtained a Judgment against the debtor. It's involutary and done against the debtor's will, whereas the Chapter 13 wage order is a "voluntary" payroll deduction for the benefit of ALL creditors covered by the Chapter 13 Plan. It's like voluntarily having health insurance,Christmas Club savings, or union dues deducted from your pay. The debtor "agrees" to the wage order deduction by filing Chapter 13. Employers don't dislike "wage orders" as much as "wage garnishments" because they are not the same. Chapter 13 debtors with wage deduction orders are employees who are gaining control of their financial situations. In most cases, employees who are being "garnished" are not dealing with their personal finances in a positive manner and this is usually reflected at home and in the workplace. Chapter 13 debtors have peace-of-mind and positive attitudes at home and at work. Garnishees often do not.
Automobile Loans and Chapter 13
Filing Chapter 13 STOPS REPOSSESSION! If you have fallen behind with your car payments, you're unable to catch up, and the bank or finance company is threatening to send out the repo man to repossess your car...WE CAN HELP! When you file Chapter 13, repossession and other collection efforts are stopped or "stayed". It doesn't matter if you are two or three or more payments behind! YOU DO NOT HAVE TO COME UP WITH ALL PAST DUE CAR PAYMENTS AT ONE TIME IN ORDER TO KEEP YOUR CAR! After you file Chapter 13 and get those collectors off your back, you file a Chapter 13 Plan. Your Chapter 13 Plan operates as a re-financing of your car loan. Your Chapter 13 Plan, in effect, operates like you have a new 36 to 60 month loan on your car. As long as you pay your Chapter 13 Plan payments to the Chapter 13 Trustee as agreed, you keep your car, and, when you complete all of your Chapter 13 Plan payments, the car is all yours and the lender must deliver the title documents to you! You will be required to keep your car insured while your in your Chapter 13 Plan repayment period. Failing to keep your car insured is considered a default and the lender could ask the Bankruptcy Judge to force you to surrender possession of your car to the lender for failing to maintain insurance coverage. However, as long as you hold up your obligation to make your Chapter 13 Plan payments as agreed, and to keep your car properly insured, Chapter 13 works! Furthermore, depending on various factors such as when you purchased your car, you may be entitled to actually reduce the amount you have to pay in order to keep the car and your monthly car payment amount could possibly be greatly reduced!
Home Mortgage Loans and Chapter 13
If you have fallen behind with your house payments, are unable to catch up, and the lender is threatening to take legal action such as foreclosure...WE CAN HELP! Filing Capter 13 STOPS foreclosure actions. A unique feature of Chapter 13 is that it allows you to "cure" or catch up past due mortgage payments over time. Chapter 13 Plans provide that you begin making your regularly scheduled mortgage payments along with an additional amount sufficient to get your mortgage current by the end of your Chapter 13 Plan which may last from 36 to 60 months. When you complete your Chapter 13 Plan you are current with the bank or mortgage company. As long as you pay your Chapter 13 Plan payments to the Chapter 13 Trustee as agreed, the bank or mortgage company can't demand that all past due house payments be paid at once. As long as you pay your Chapter 13 Plan payment to the Chapter 13 Trustee as agreed, the bank or mortgage company can't foreclose. In our opinion, this feature is one of the best reasons for using Chapter 13. You can STOP FORECLOSURE and SAVE YOUR HOME!
Chapter 13 and the IRS
If you owe back taxes to the IRS or the State Tax Commission, these creditors can be repaid through your 36 to 60 month Chapter 13 Plan. Filing Chapter 13 STOPS almost all collection actions against you - even IRS collection efforts. AND, under certain circumstances, you may even be able to substantially reduce or eliminate overdue tax liabilities altogethrer. You will, however, need to have all delinquent tax filings completed prior to the Chapter 13 creditor's meeting before your Plan can be approved and "confirmed" by the Bankruptcy Court. You must also remain current with all tax filing requirements while you are in your Chapter 13 Plan.