Chapter 13 Restructuring You Debts

The primary purpose of a Chapter 13 Bankruptcy case is to restructure and reorganize your current debt to make it more manageable. A Chapter 13 Bankruptcy places all of your debt into a monthly payment and over 36 to 60 months. Completion of the plan payments will discharge most types of unpaid general unsecured debt. A lower monthly payment for all of your debt is only one way in which a Chapter 13 Bankruptcy can restructure what you owe and to whom you owe it. A Chapter 13 Bankruptcy can literally change what you owe and how what is owed is paid to some, or all, of your creditors.

A Chapter 13 Bankruptcy requires the debtor to make monthly payments to your creditors through a United States Trustee. How those monthly payments are broken up, and paid to your creditors will be according to the federal bankruptcy law. Hence, the payments you make to your creditors through a Chapter 13 Bankruptcy are designed to be different that if you paid them directly in an effort to make your monthly debt payments more efficient and easier to make. The law allows you to pay as little as pennies on the dollar to unsecured creditors and can allow the reduction of the amount that must be paid to some secured creditors (except residential mortgages).

It can also help you catch up on your mortgage because it can force the mortgage company to accept payments on mortgage arrears over a longer period of time than the mortgage company is voluntarily willing to accept. While a Chapter 13 Bankruptcy cannot change the terms of your mortgage, it can allow you to bring a past due mortgage current over the 36 to 60 month plan. Mortgage arrears are paid as secured debt, and “pro rata.” In other words, rather than paying past due mortgage payments in a large lump sum, or a series of very large payments, as a mortgage the might otherwise demand, you can stretch out what you pay over life of the Chapter 13 Bankruptcy plan. What was once a mountain of insurmountable debt, particularly if you re facing a foreclosure, becomes much more affordable.

Another example is the repayment of a car loan in a Chapter 13 Bankruptcy. Even for a recently purchased vehicle, a Chapter 13 Bankruptcy can reduce your monthly car payment by stretching out these fixed payments over a longer period of time. If the judge approves your Chapter 13 Bankruptcy plan you can even stretch your current car loan over the entire life of the plan. If you own an older vehicle, one that was purchased more that 910 days before filing of a Chapter 13 Bankruptcy (roughly two and one half years before filing), you can rewrite the balance of the loan down to the value of the car. This is known as a “cram down.” Cramming down a car allows you pay back only 100% of the car value and a fraction of anything beyond that, rather paying back 100% of what you owe. In other words, a Chapter 13 Bankruptcy can save you money on your car.

The most potent instance of using a Chapter 13 Bankruptcy to restructure your debt is the ability to pay back general unsecured creditors like credit cards, medical bills, personal loans, personal signature loans, utilities and payday loans at as little as pennies on the dollar over up to five years. Most unsecured creditors are paid “pro rata.” In other words, you do not have more make the high credit card minimum payments nor do you have chose which credit car or which medical bill to pay first. They are all paid in small amounts over the life of your plan! And, for most debt in a Chapter 13 Bankruptcy, whatever you do not pay will be eliminated!

Debt Settlement and Consolidation V.S. Chapter 13 Bankruptcy