Louis Zimmerman Attorney at Law

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Chapter 13

     Chapter 13 bankruptcy allows a person to consolidate the debt while making convenient monthly payments to a trustee. A payment plan is proposed which repays the debt over a three to five year period.

The amount of the monthly payment and the length of the repayment plan is based upon the following factors:

• Monthly income of the person
• Monthly expenses of the person
• Amount and nature of the debt

The most common uses of Chapter 13 involve:

• Repayment of mortgage arrears (back amounts owed) home
• Restructuring of auto loans to save a vehicle

     Secured debts are paid 100% on the dollar, while unsecured debts may be paid less than 100% on the dollar. A person receives a discharge under Chapter 13 once the payment plan is completed.

Chapter 13 is usually preferable for a person who:

1) wishes to repay all or most of his or her unsecured debts and has the income with which to do so within a reasonable time

2) has valuable nonexempt property or has valuable exempt property securing debts, either of which would be lost in a chapter 7 case

3) is not eligible for a discharge under chapter 7

4) has one or more substantial debts that are dischargeable under chapter 13 but not under chapter 7

5) has sufficient assets with which to repay most debts, but needs temporary relief from creditors in order to do so.

In a chapter 13 case, the bankruptcy court can provide aid to the debtor that private debt consolidation services cannot provide. For example, the court has the authority to prohibit creditors from attaching or foreclosing on the debtor's property, to force unsecured creditors to accept a chapter 13 plan that pays only a portion of their claims and to discharge a debtor from unpaid portions of debts. Private debt consolidation services have none of these powers.

How does chapter 13 differ from a private debt consolidation service?

     In a chapter 13 case, the bankruptcy court can provide aid to the debtor that private debt consolidation services cannot provide. For example, the court has the authority to prohibit creditors from attaching or foreclosing on the debtor's property, to force unsecured creditors to accept a chapter 13 plan that pays only a portion of their claims and to discharge a debtor from unpaid portions of debts. Private debt consolidation services have none of these powers.