CHAPTER 13

THE DEBT CONSOLIDATION PLAN

There is a Federal Program, known as Chapter 13, that protects individuals and businesses from their creditors, by allowing them to consolidate all of their debts into one low payment.

Essentially, in a Chapter 13, all debts -- including credit card charges, medical bills, automobile payments, back taxes, personal loans, bad checks, student loans, mortgage arrearages, and back child & spousal support -- can be consolidated into one low monthly payment.

Under this program, you simply send your payment to a court- appointed trustee, who disburses the money among your creditors until they are paid.

Then sit back and relax...because by law, all debt collection must stop.

Click on any question, and you will be forwarded to the answer.

Q-1. How does a Chapter 13 protect me from my creditors?

Q-2. Is Chapter 13 the same as straight bankruptcy?

Q-3. How much do I pay every month?

Q-4. Can I use this Chapter 13 to get rid of my unsecured debts and just pay my secured creditors?

Q-5. Okay. What is the difference between "unsecured" and "secured" debts?

Q-6: Okay, now that i know which of my debts are secured, is it possible
to "wipe-out" my unsecured debts, and at the same time, just repay
my secured creditors?

Q-7: If I file a Chapter 13, and propose to pay nothing to my
unsecured creditors, I have to pay my secured creditors in full, right?

Q-8: But if I don't pay my unsecured crediors, what happens to
those unsecured debts?

Q-9: How soon can I file a Chapter 13 case?

Q-10: Will I lose any property by consolidating my debts into one
low monthly payment in a Chapter 13 case?

Q-11: Will I pay any interest to my creditors during this
consolidation?

Q-12: Will a Chapter 13 consolidation have any "negative effect" on
my job?

Q-13: Can I cure any back payments owed on my real estate or
residence in a Chapter 13 case?

Q-14: Will I get the "Pink Slip" back on my car?

Q-15: Will I have to go to court to get my Chapter 13 case approved?

Q-16: Can I still get my case approved if a creditor objects to
my consolidation plan?

Q-17: How much do I pay my attorney to file my Chapter 13 case?

Q-18:. Do you mean to tell me that can repay my secured creditors,
back taxes, student loans, and at the same time WIPE OUT all of my
unsecured debts . . . and all I need is a $180 filing fee? Is this
really possible?

Q-19: How will this consolidation affect my credit rating?

Q-20: What if my parents, a friend, or relative are co-signors on a
loan? Will they be protected?

Q-21: How does Chapter 13 compare to straight bankruptcy?

Q-22: If necessary, can I change my mind and file a Chapter 7
bankruptcy case during the pendency of my Chapter 13
proceeding?

Immediately upon the filing of your case, the Court issues a
"Restraining Order" to all of your creditors, which legally
prohibits your creditors from engaging in any further debt
collection activity against you. Essentially, your creditors are
legally prohibited from:

Filing or continuing forward with any pending lawsuit;

Garnisheeing your wages or levying upon any of your property;

Contacting you by either telephone or mail;

Speaking to your employer, friends, relatives or parents about your debts;

Repossessing any of your property, including your automobile;

Collecting from co-signors who have agreed to be liable for your unpaid debts.

Commencing or continuing with foreclosure proceedings against your real estate.

PLUS Your Chapter 13 program also stops any additional fees, late charges, court costs, and interest owed to your unsecured creditors.

No. Under Chapter 13, you are seeking legal protection from the bankruptcy court so you can repay your creditors a monthly amount that you can comfortably afford.

In a straight bankruptcy, on the other hand, you are seeking to be "legally excused" or "discharged" from having to pay most of your unsecured creditors.

Your monthly payment depends upon whatever you can afford. Most people pay between $150 and $250 a month. This amount is usually less than their monthly automobile payment and substantially less than their combined monthly payments owed to all of their creditors.

So, the Chapter 13 consolidation is almost always the least costly alternative.

Yes, you can. However, at this point, the difference between "unsecured" and "secured" debts must be explained to understand how repaying just your "secured debts" under Chapter 13 can save you thousands and thousands of dollars.

A "secured debt" is one where you have signed a security agreement pledging collateral, either the merchandise being purchased, or other personal and real property, to secure payment for the debt.

Secured debts are ordinarily incurred when you purchase an automobile, house, furniture, jewelry, and household appliances, such as a refrigerator, washer & dryer, stereo, TV set, etc.

If you have NOT pledged any property for the debt, it is classified as "unsecured." Credit card charges, medical bills, and student loans are examples of unsecured debts.

In a Chapter 13 proceeding, you are allowed,with some exceptions, to pay your unsecured creditors any percentage of the amount you owe, even nothing. So, if you can not afford to pay your unsecured creditors in full, you may have the legal right to repay those creditors (with the exception of student loans, taxes, back child & spousal support) any percentage you want (eg. 70 cents, 50 cents, 25 cents, or ZERO cents on the dollar).

In other words, your Chapter 13 Plan can be set up to allow you to repay your secured creditors, back taxes, and student loans.

One note about taxes: If your taxes are more than 3 years old, you have filed timely tax returns for the last 2 years, and a tax lien has not yet been filed against your personal or real property, your taxes can also be "WIPED OUT" in a Chapter 13 proceeding, within which you are proposing to pay "nothing" to your unsecured creditors.

No. If your Chapter 13 plan proposes to pay your unsecured creditors "nothing", you do not have pay your secured creditor more than the fair market value of that creditor's collateral.

For example, it you owe $12,000 on a car and it's only worth $7,000, then, if your Chapter 13 Plan proposes to pay "nothing" to your unsecured creditors, all you have to repay is $7,000. (However, you will be required to pay 10% APR interest on this $7,000)

Similarly, if you owe $2,000 on furniture purchased two years ago, worth only $500 now, all you have to repay is $500.

Upon successful completion of your case, you will receive a "Chapter 13 Discharge" meaning that you will be "legally excused" from having to repay your unsecured creditors.

In other words, your creditors will be prohibited forever from ever collecting any money from you, which includes any balance not repaid to your secured creditors--which have been paid the fair market value of their collateral.

Immediately! To start your case, you must provide our office with the following:

names and addresses of all your creditors;

proof of income (ie. paystub, LES, check evidencing receipt of military or social security retirement income or disability benefits, etc.); and

the $185 court filing fee.

Upon receipt of the above, your case can, almost always, be prepared for filing by the next business day.

Rest assured, if you were behind on your automobile payments at the time your case was filed, creditors will be legally barred from repossessing your vehicle.

Absolutely not! All your property will be "legally protected." Neither the Bankruptcy Court nor your creditors can take any of your property.

However, if you do not want to pay a secured creditor of, let's say, a car, furniture, or jewelry, etc.. you can, with some exceptions, return the collateral and owe nothing.

Almost always, you will never pay any interest to your unsecured creditors. However, secured creditors, with some exceptions, will be paid 10% APR interest on the fair market value of their collateral or the total indebtedness, whichever is less.

Definitely not. Federal law prohibits any employer, be it private or public, including the military, from discriminating against an employee who has filed a bankruptcy proceeding.

Furthermore, a governmental entity may NOT refuse to grant you a student loan simply because you have filed bankruptcy before.

Yes, you can. Although you will have to resume your regular trust deed payments immediately after your case is filed, you can cure any back payments, including back property taxes, by consolidating these obligations with the rest of your debts in a Chapter 13 case.

Yes. After you have completed all payments to the trustee to pay off the secured portion of your car under a Chapter 13 case, the secured creditor of your automobile is legally required to release your "Pink Slip" directly to you.

If no one objects to your case (an objection is seldom filed), you will not have to appear at a Bankruptcy Court hearing. However, you will be required to appear at a Chapter 13 creditor's meeting. The meeting is nothing more than a procedural formality. No Judge is present. Although a creditor can attend and ask you questions regarding your income and expenditures, a creditor very rarely appears.

After your name is called at this hearing and, if no objection is made, your case is automatically approved by the court without you having to say a word. It's that easy.

Absolutely. Even if a creditor objects to your debt consolidation plan, it will still be approved by the court, provided you satisfy the following four requirements.

You have agreed to commit all of your "Disposable Income" to the Plan. This means that you have proposed a Chapter 13 Plan within which you will pay all that you can afford to pay, after subtracting your monthly expenditures from your monthly income.

(In other words, if your combined monthly income totals $2,000, and your monthly household expenses add up to $1800 (i.e. rent, utilities, clothing, food, transportation, insurance, etc.), then you must pay at least $200 a month toward your Chapter 13 Plan. You can not, for example, propose to pay $150 a month in this situation.

Your Chapter 13 Plan must propose to repay your secured creditors at least an amount equal to the fair value of their collateral, or, the amount owing, whichever is less. If, for example, there is $10,000 owed on your car--which has a value of $6,000--you must propose to pay the secured creditor at least $6,000.

Your Chapter 13 Plan must propose to pay your unsecured creditors at least an amount equal to what they would receive if you had filed a straight Chapter 7 Bankruptcy case. For example, if you propose to pay "nothing" to your unsecured creditors, you must show that they would get "nothing" if you filed a straight bankruptcy. Since, in the vast majority of cases, your creditors would not receive anything if you filed a straight bankruptcy, you can fulfill this requirement by paying your unsecured creditors any amount you want, even nothing. (With the exception of student loans, taxes, and back child support, which must be paid in full through your plan.)

You must be able to complete your Chapter 13 Plan within 5 years.

If you meet all four of the above requirements, your case will be routinely approved by the Bankruptcy Court, even if there is an objection filed by one of your creditors, which very rarely occurs.

If your case is relatively simple and does not involve any real estate in foreclosure, your Chapter 13 Petition will be filed upon payment of a $160.00 court filing fee. No up-front attorney's fees are usually required to start your case. The attorney will become a creditor and will receive a court approved fee, which will be deducted from your monthly Chapter 13 Plan payment.

In other words, the attorney will agree to do all the legal work required and get paid later from the court. All you need is a $160.00 filing fee to start your case.

It is the honest to goodness truth. And because it is the law, which was enacted by Congress to help consumers eliminate their debt, you should take advantage of this legal right.

Obviously, this program will not have any favorable impact upon your credit rating. However, it will not completely restrict you from buying goods and services on credit. In fact, it's not unusual for participants of this consolidation program to receive invitations to obtain credit for the purchase of an automobile, home appliance, furniture, even a house. Some have even received credit cards in the mail during the pendency of their case. (Be sure to read the section titled "Future Credit".)

Yes, they will receive total protection from the Bankruptcy Court. During your participation in this program, your creditors will be prohibited by law from attempting to collect any debt from your co-signors. And to prevent any creditor from pursuing your co-signor after the completion of your case, your Chapter 13 Plan will generally provide for this creditor to be paid at the contract rate of interest.

If your Chapter 13 Plan proposes to pay nothing to your unsecured creditors, it could be in your best financial interest for you to file a Chapter 13 Bankruptcy rather than a Chapter 7 Bankruptcy.

For an initial filing fee of just $160, you can WIPE OUT all of your unsecured debts (except most taxes, child support/alimony and student loans) and at the same time drastically reduce your monthly payments to your secured creditors . . . by paying those creditors not necessarily what you owe . . . but instead paying the fair market value of the collateral . . . which is almost always an amount substantially less than what is owed on the debt.

For example, let's say you owed $10,000 on an automobile and you were paying $300 a month in payments on that vehicle that was only worth $5,000. By filing a Chapter 13, you would only have to repay $5,000 -- the fair market value of that vehicle -- at just 10% APR interest, and at the same time, you may be able to lower your $300 monthly payment to $150.

On the other hand, if you decided to file a Chapter 7 case, you would still be stuck having to repay this same creditor the entire $10,000, at $300 a month, with the original contract rate of interest, even though the vehicle is worth just $5,000.

Yes. If you have not filed bankruptcy within the last 6 years and do not have the financial ability to continue forward with your Chapter 13 case, you have the absolute right to convert your case to a Chapter 7 Bankruptcy. Also, you have the right to voluntarily dismiss your case at any time or to accelerate the completion of your plan by increasing your monthly plan payment.

If, per chance, you have filed a Chapter 7 Bankruptcy within the last 6 years, you are not prohibited from seeking protection from your creditors by filing a Chapter 13 Bankruptcy case.

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