Some high income makers balk at the idea of filing a Chapter 13 bankruptcy when they realize they will have to enter into a disciplined plan that may last up to five years to payback 100 percent of their unsecured debt. They don’t understand the advantages for entering such an agreement.
Here are some great advantages for a high income maker to enter in a 100 percent payback plan in a Chapter 13:
A Chapter 13 Enjoys the Automatic Stay Like Any Other Bankruptcy
The automatic stay is a feature of all bankruptcies. The moment you file for bankruptcy protection, your creditors can no longer contact you concerning the debt you owe them until the automatic stay has been lifted by the bankruptcy court or until the creditor’s meeting is held during the bankruptcy. Even then, the meeting is officiated by a bankruptcy trustee and is for information gathering, something you will have already discussed with your lawyer.
Lets face it. You are considering filing bankruptcy for some reason, and the biggest reason is not being able to get rid of the creditor hounds. The automatic stay effectively eliminates the problem in almost all cases.
A 100 Percent Payback Plan in a Chapter 13 is Better than Any Consolidation Loan
Like a consolidation loan, you combine all of your debts into one monthly payment over a period of 3 or 5 years. The bankruptcy trustee distributes the payments to the recipients that are part of the plan. You pay normal interest and principal on all secured debts in a Chapter 13 plan, but unlike a consolidation loan, you pay only the principal amount on unsecured debt.
A Chapter 13 Alleviates Interest, Penalties, and Fees on Unsecured Debt
Although you are paying 100 percent on unsecured debt over a period of 3 years or 5 years, you are paying the principal amount only. Interest, late fees, and penalties are waived from your responsibility as long as you make your monthly payment to the trustee as agreed. Over a period of 3 to 5 years, interest, penalties and fees can add up in a hurry.
A Chapter 13 Allows a Cram Down in Some Cases
If your mortgage or automobile is underwater, a Chapter 13 will allow you to cram down the principal amount to the current market value in some cases. Depending on the district bankruptcy court and the state in which you reside, this can be a big advantage for filing a Chapter 13.
A Chapter 13 Allows You to Strip Off a Second Mortgage
Another advantage for filling a 100 percent plan is that you can strip off a second mortgage as a secured asset if the value of house is less than the primary principal amount. Stripping the mortgage makes the debt an unsecured amount. The advantage is that you will only have to pay the principal amount in a 100 percent plan. All interest, penalties, and fees will be waived.
These are just some of the advantages of filing a Chapter 13 bankruptcy, even if you expect to be in a 100 percent payback plan. To find out more about your particular situation, it would be wise to consult with a bankruptcy lawyer who specializes in Chapter 13 bankruptcies.
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