Read this article if you are interested in:
- Exploring debt consolidation vs. chapter 13 bankruptcy.
- Finding out what type of debt is not released by chapter 13 bankruptcy.
- What a chapter 13 plan is.
How Does Chapter 13 Bankruptcy Differ From Debt Consolidation Services?
Although there may seem to be many similarities between chapter 13 bankruptcy and debt consolidation, there are significant differences. Understanding just a few differences between debt consolidation and chapter 13 bankruptcy will help you move your case in the right direction.
With chapter 13 bankruptcy, you have much more control over creditors. In debt consolidation, you pay monthly installments to the consolidation server.
Without bankruptcy protections in place, a creditor may get impatient and sue you without concern for whether you are in a debt consolidation situation. As a result, you risk paying considerable money to be sued under a debt consolidation plan.
This is not to say debt consolidation is always a bad thing. Sometimes this is a better fit for individuals than bankruptcy.
In a chapter 13 bankruptcy, your monthly payment is based on your disposable income and assets that cannot be fully protected. As a result, there are times when it is not the most affordable option. With it, you must show your trustee your tax returns yearly.
What’s more, if your income increases, you will likely need to increase your payment. On the contrary, if your income decreases, there is no guarantee you can lower your payments.
In addition, you cannot incur any new debt. This means you cannot do things many take for granted, such as buy a car, keep your tax refund, or get a mortgage without permission from the court.
What Type Of Debt Is Not Released By Chapter 13 Bankruptcy?
Chapter 7 bankruptcy never releases debt from child support and alimony. In addition, chapter 7 bankruptcy will not discharge your debt if you have criminal restitution. In general, debt from federal and state taxes cannot be released. Also, any debt you incurred by fraudulent means is not eligible to be discharged.
When combined with additional efforts that would require litigation, chapter 7 bankruptcy can discharge student loan debt. Recent changes to the law make getting relief easier in some situations, but you will still need to meet a specific bar. Nevertheless, even with these changes, your debt is not guaranteed to be discharged.
What Exactly Is Meant By “Chapter 13 Plan”?
A chapter 13 plan is the most significant difference between chapter 7 and chapter 13 bankruptcy.
With a chapter 7 bankruptcy, you simply list everything required and file the necessary paperwork. With a chapter 13 bankruptcy, you file much of the same paperwork but also have to develop a payment plan. This covers things ranging from:
- How much your monthly payments will be,
- If payments will increase or decrease at all during the plan’s length,
- Where the funds you pay are going to go,
- And more…
This last point is another strong differentiator from chapter 7. Payments you make are dispersed in different ways. For example, suppose your mortgage and car payment are in your bankruptcy. They would have to be paid. On top of that, the trustee gets a 10% fee, which must be paid as well.
Creating this plan gives creditors a chance to review it. If none objects, the plan gets confirmed, and about six months later, you can begin tackling your debt.
What Is A Chapter 13 Trustee?
The chapter 13 trustee is an individual from the court that is in charge of all chapter 13 cases and clients. They represent creditors and ensure they get what they need. They also work to ensure the process goes smoothly by ensuring chapter 13 plans are filed and confirmed and, after that, monitor cases as they progress.
They also oversee missed payments and have the authority to dismiss cases for that reason. In fact, they can dismiss your case for any reason if you fail to cooperate.
Do I Need To Pay Off All Debt While A Chapter 13 Plan Is In Effect?
Since your payment plan is based on what you can afford, (i.e., your disposable income and other factors), you are not required to pay off all debt.
For example, sometimes payments go to all of your creditors and will only pay off 10% of your debt. Each case is different, so it just depends on the specific situation.
Do I Have Any Say In What Gets Paid And When In A Chapter 13 Bankruptcy Case? Do All Unsecured Debts Have To Be Treated The Same?
Unsecured debts are not of the debtor’s concern, so that is not something you should really worry about.
Suppose you have taxes coming out for the IRS even though those are unsecured. Of course, that unsecured debt would be a priority. But for something like a credit card or medical bill, you would have no say in who gets what. That is all based on who files proof of claims and what order they are in.
For more information on Debt Consolidation Vs. Chapter 13 Bankruptcy, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (407) 305-5599 today.