Chapter 13 Compared To Other "Non-Bankruptcy" Consolidations: Skip to main content

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Chapter 13 Compared To Other "Non-Bankruptcy" Consolidations:

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Chapter 13 bankruptcies are a type of "debt consolidation" allowing you to reorganize your finances by consolidating your debts into one monthly payment.

Chapter 13, however, should not be confused with other types of debt consolidation programs....such a consolidation loans from a bank or finance company OR credit counseling payment plans.

Chapter 13 has the power of the Federal Bankruptcy Code behind it, and provides all of these advantages for people seeking debt relief:

The All Powerful Automatic Stay: When you file a Chapter 13 bankruptcy, you receive immediate protection by what is called "the automatic stay". The automatic stay is a Court Order issued immediately when you file bankruptcy. It prohibits any further collection activity against you. The stay has the power to stop foreclosures, repossessions, garnishments, license suspensions, lawsuits, and creditor harassment.

Other types of debt consolidations don't have any stay provisions; there is no Court Order protecting you; and your other creditors can continue on with collection against you.

Put More Types of Debt Under Control: Almost all of your debts can be included in and put under control in a Chapter 13 bankruptcy, consolidating your debt into one low, affordable, monthly payment. This includes mortgages, car and truck loans, taxes, past-due child support and alimony, medical bills, personal loans, and credit card debts.

Other types of debt consolidations only allow specific and very limited debts to be consolidated in the payment plan, and don't usually consolidate important debts, like your mortgage arrears, car payments, tax debt, and child support arrears. The one exception is where you make the risky move of re-financing your mortgage. In the case of credit counseling companies, in most cases, the only debts dealt with at all are credit card debts, and then only if the credit card companies play ball.

Reduce Debts By 100%: You can't beat that. We're talking about credit card debts, medical bills, personal loans and other 'dischargeable' unsecured debts. Under the NEW Bankruptcy Law, most people are passing the new "Means Test". You may have heard about it. Turns out the big, bad, Means Test ain't that 'mean'. The really good news? People who pass the Means Test get to pay $0.00 on these debts. That's right, $0.00.

The truth is that ALL the other "non-bankruptcy" consolidation plans make you repay 100% of the principal owed, plus some or all of the interest.

Why? Because only the bankruptcy laws provide for actually debt 'principal' reduction, and any "non-bankruptcy" ad that promises "debt reduction" is only talking, at best, about interest, not principal, and trying to trick you.

Gives You The Force Of Law: Bankruptcy law is Federal law. Creditors are told what to do and how and when to do it. Creditors that fail to comply with Bankruptcy law can be hauled in front of the Bankruptcy Court and punished.

The other types of loan consolidations...on the other hand...lack the power of law to dictate what the creditors are entitled to be paid. These programs, especially credit counseling repayment plans, merely "ask" the creditor to lower the interest rates. Forget about lowering the principal balance owed. For instance, credit counseling repayment plans are "voluntary" for your creditors, and any creditor can decide, at any time, to stop participating, regardless of what position this leaves you in.

A Definite Time Period, And Then, You're Done: Chapter 13 bankruptcies are usually between 1 and 5 years in length. All dischargeable debts are eliminated at the completion of the bankruptcy.

The other types of loan consolidation programs allow a possibility that the plans could drag on for years and years....without significantly lowering the balances...leaving you in debt and damaging your credit record.

There Is NO Interest or Late Fees: Upon filing Chapter 13, any debt in existence prior to the filing does not accrue any more late fees, and...in most cases....what little has to be re-paid... can be repaid "interest-free". Again, we are talking about credit cards, medical bills, personal loans, and other unsecured debts, this time, regardless of whether or not they are dischargeable. All of the money you pay toward your unsecured debt will generally be applied toward principal drastically reducing the amount of time it takes you to get out of debt. The only exception is for 'secured' debts, which are debts for which you have pledged something as collateral, and even with some of these secured debts, the amount and rate of interest can be reduced significantly.

The other types of consolidation plans don't reduce the amount of the debt at all, and...at best... only lower your interest rates somewhat, and then only with respect to the unsecured creditors that participate. The result is that a lot of good, hard-working people...just like you....end up strapped with monthly plan payments far in excess of what you can afford. What good is a plan payment you can't afford?

Attorney Working In Your Best Interests: Your Chapter 13 attorney has a legal and ethical obligation to zealously represent your best interests. Your attorneys compliance with his obligations to you are regulated by State law. Thus, in a Chapter 13 bankruptcy, you have the opportunity to have a bankruptcy attorney represent only your interests and you are ensured that your attorney is fighting for your rights.

Many debt consolidation programs are private entities...the ones that are not scam operations....sponsored by and controlled by the creditors, and ....as such....there are no mechanisms in place to protect you or to look out for your best interests.

Protects Equity: A Chapter 13 bankruptcy does not require you to pledge any collateral in order to consolidate.

Many of the other consolidation plans, including home equity loans, require you to risk your home and property, if you can't afford the monthly payments.

Pays Your Most Important Bills First: A Chapter 13 bankruptcy plan pays off most secured loans first, taxes and co-signed debts second, and delays payment of unsecured debts to last. The majority of the initial Chapter 13 payments can be applied towards mortgage and automobile payment defaults. Then, your money goes to pay overdue taxes and co-signed debts. Credit cards and medical bills (only due if you fail new the Means Test) only get paid after these secured and other priority claims have been paid off.

Credit counseling repayment plans, for instance, don't have the power to delay payments to unsecured creditors.... without penalty.... or to give preferential treatment to your car or home finance companies.

Debts Are Eliminated If The Creditor Doesn't File A Proof Of Claim: Each creditor must file a proof of claim with the Bankruptcy Court if they are to be paid during the consolidation. Frequently, not all creditors listed in a Chapter 13 bankruptcy file a proof of claim. As long as you finish the terms of your Chapter 13 debt repayment plan, all unfilled claims of unsecured creditors are eliminated....and this means by paying zero cents on the dollar.

In the case of credit counseling repayment plans, a creditor who does not participate is still owed 100% of its debt and 100% of its interest, fees, etc., and can go right on harassing your for payment, whether you can afford it or not.

Does NOT Put Other Types Of Property In Jeopardy: In Chapter 13....you can put creditors under control without having to offer up any more of your property as collateral.

With the other "non-bankruptcy" types of consolidations, many times, the only way to qualify for a debt consolidation loan or plan is to pledge other property you own as collateral....as, for instance, when you pledge you house to get a second or third mortgage to come up with the money to pay off some credit cards or other unsecured debts. Using this example, this puts your house at risk....because...if you can't make your payments....now....not only can the creditor come after you....the creditor can take your house. The same thing can happen when you give a creditor a second or third lien on your car or truck.

Other debt and bill consolidation ads promise
....but only Bankruptcy provides.

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