CHAPTER 13 VERSUS CHAPTER 7 - THE ADVANTAGES
 
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The Advantages of Chapter 13 Bankrupty over Traditional Debt Consolidations

Chapter 13 bankruptcies are considered a type of debt consolidation program allowing a debtor to reorganizetheir finances by consolidating their debts into one monthly payment. Chapter 13, however, should not be confused with traditional debt consolidation programs Chapter 13 has the power of the Federal Bankruptcy Code behind it, and provides many advantages for people seeking debt relief:

The Automatic 'Stay'

When filing a Chapter 13, you receive immediate protection under the law with an automatic stay, a Bankruptcy Court injunction which prevents nearly all collection activity against you. This injunction has the power to stop foreclosures, repossessions, garnishments, license suspensions, and creditor harassment. Traditional debt consolidations don’t have any comparable provisions, there is no court ordered protection so you and your creditors cannot be forced to stop any of these actions.

Includes Most Types of Debt

Most traditional debt consolidation programs only allow specific debts to be consolidated in a payment plan, and don’t usually consolidate mortgage arrears, car payments, tax debt, and child support arrears. All of these debts can be included in a Chapter 13 bankruptcy, consolidating your debt into one monthly payment and providing protection from ALL of your creditors.

Drastically Reduced Total Amount of Debt

Subject to certain legal qualifications, A Chapter 13 will allow you to pay as little as 10% of the unsecured debt back and eliminate the remaining 90%. Your reduction in principal owed allows you to pay your debts off more quickly then you could through other plans lacking the power over what the creditors are entitled to be paid. Traditional consolidation programs generally ask the creditors to lower interest rates or balances and do not have a Federal judge ordering the creditors to adhere to the plan.

Definite Time Period

Chapter 13 bankruptcies are generally between 3 and 5 years in length. All dischargeable debts are eliminated at the completion of the bankruptcy period. Traditional consolidation allow a possibility that the plans could drag on for years without significantly lowering the balances.

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 usually will be repaid interest-free. 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 repay a debt.

Attorney Working in Your Best Interests

Your Chapter 13 attorney has a legal and ethical obligation to zealously represent your best interests. Your attorney’s 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, sponsored by creditors and don’t have the same strict legal requirements to protect borrowers’ best interests.

Protects Equity

A Chapter 13 bankruptcy does not require you to post any collateral in order to consolidate. Many traditional debt consolidations or 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 and delays payment of unsecured debts. The majority of the initial Chapter 13 payments can be applied towards mortgage and automobile payment defaults. Credit cards and medical bills can be paid after these secured and other priority claims have been paid off. Traditional debt consolidation plans usually don’t have the power to delay payments to unsecured creditors without penalty or 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 are eliminated and never have to be paid back.




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