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The Shocking Truth About Chapter 13 Bankruptcy That Your Lawyer Doesnt Want You to Know


Chapter 13 bankruptcy can be a great help to debtors. Knowing the basics is important to make an informed decision. This article explains the process and how it differs from other forms of bankruptcy such as Chapter 7.

Under Chapter 13, you create a repayment plan with court approval. This is based on your income and ability to pay. Creditors are paid back, depending on the type of debt. At the end of the procedure, all applicable debts are discharged.

Unlike Chapter 7, filing for Chapter 13 does not involve selling assets or liquidating or consolidating debts. You need a lawyer to help you through the process and protect your interests. Consider all aspects before taking this step and make sure it is truly necessary. If done correctly, it can be an effective way out from unmanageable debt while providing protection against creditors during repayment. Your lawyer can give you the most up-to-date information on the potential risks and rewards of choosing a Chapter 13 form of bankruptcy.

What is Chapter 13 Bankruptcy?

Chapter 13 Bankruptcy is a type of reorganization. It protects debtors from foreclosure, collections, and repossession. They can pay creditors over a three to five year period. Before filing, it's important to learn the details.

Let's look at the basics and pros and cons of Chapter 13 Bankruptcy:

Benefits of Chapter 13 Bankruptcy

Filing for Chapter 13 bankruptcy can help debtors get out of financial hardship. It gives them a payment plan to pay off their debts over 3-5 years. Here are the primary benefits:

  1. Payment Plan: Negotiate with creditors to make payments over 3-5 years. Leftover balances may be discharged at the end. This is an option for those who don't qualify for Chapter 7.
  2. Protect Assets: Keep certain assets, such as inherited items or property, which would be liquidated in Chapter 7 proceedings. Restructure secured debts such as mortgages for more manageable payments.
  3. Reduce Interest: The court must accept whatever interest rate it sets, even if lower than the original agreement.
  4. Avoid Foreclosure & Repossession: Stops mortgage lenders and car loan companies from foreclosing or repossessing. Also stops monthly payments on furniture, etc.

Drawbacks of Chapter 13 Bankruptcy

Chapter 13 Bankruptcy is seen as a positive option as it lets you pay back your debt over 3-5 years. However, there are some drawbacks to consider.

  • It has high costs, including filing and admin fees. Plus, the payments come from your disposable income, rather than in one go.
  • During the process you won't be able to take out new credit. This can be a problem in case of an emergency or when buying a house or car. You could be in debt for even longer, as so much of your income goes to payments.

It's important to weigh up the pros and cons before deciding whether Chapter 13 Bankruptcy is the right option for you. Consider other options like loan modification or debt settlement too.

Your Lawyer's Role

Obtaining help from an attorney can be wise when filing for Chapter 13 bankruptcy. An attorney can help you with the paperwork, understand the process and file the necessary documents. However, it is important to know your rights and understand the filing process.

This article will discuss the role of an attorney and what to consider when filing Chapter 13 bankruptcy:

What Your Lawyer Won't Tell You

When you hire a lawyer to file bankruptcy, it's important to know what your lawyer will and won't do. They will deal with courts and make sure everything is planned. To reduce stress, you should know where your attorney draws the line.

Your lawyer doesn't need to tell you each detail about bankruptcy. They may even hide facts that can help reduce debt. This may include acceptable terms for repayment, waiving court fees, or even alternate plans.

Your lawyer may also not share potential loopholes in income requirements and other eligibility issues that could prevent you from qualifying for Chapter 13. They are not required to teach you financial literacy topics like budgeting, spending, and avoiding future financial problems. This isn't needed to file bankruptcy, but can be useful when creating a post-filing plan of action.

What You Need to Know About Legal Fees

Before you start your Chapter 13 bankruptcy journey, it is important to know the legal fees and your lawyer's role. Your lawyer will assist you in the process. They will represent you in court, handle paperwork and negotiate a successful filing of bankruptcy.

You must find a reliable lawyer who specializes in Chapter 13. Ask them questions about their experience and knowledge of the law. Also, ask about the payment plan. Some lawyers charge an hourly rate and some may require an upfront payment.

You should also know that the judge makes the final decision about any issue concerning your case. Your lawyer can only make an argument, not guarantee a result. Listen to the advice of the lawyer or court-appointed trustees. Be open-minded during negotiations.

Alternatives to Chapter 13 Bankruptcy

Filing for Chapter 13 bankruptcy is no trifling matter. You'll need to work with a court-appointed trustee, repay most of your debt, and face grave consequences if you fail to make payments. Alternatives to this course of action are available. Let's investigate them, so you can make an educated decision.

Debt Settlement

Debt settlement is a smart choice instead of Chapter 13 bankruptcy. It involves talking to each creditor and finding an amount you can pay. Your negotiator has lots of contacts in the debt collection industry. They may reduce the amount or time it takes to pay. In some cases, debt settlement gets rid of high interest and late payment charges.

You will work with your mediator for about six months. But, it could take longer based on your situation. With a good negotiator you're likely to settle for half or less of what you owe. Many lenders are willing to negotiate if they don't think they will get paid. When you and the creditor agree, it's legally binding and both sides can be confident.

The payments are put into a third-party account. Once all payments are made and all obligations met, including court costs, creditors drop the rest of the debt. The debt may stay on your credit report for 7 years, but settling can save you money and help your FICO score more than if you filed for bankruptcy.

Debt Consolidation

Debt consolidation is an alternative to Chapter 13 bankruptcy. It helps borrowers merge their numerous debts and create one simple loan. This loan is backed up by something, like a property or savings account. The borrower uses the loan funds to pay off existing debts, turning them into one debt with lower interest rates and/or monthly payments.

Not everyone is eligible for debt consolidation. To be eligible, you must:

  • Have a good credit score
  • Have enough income or assets to cover higher interest costs
  • Have enough equity in assets to back the secured portion of the loan
  • Be able to make regular payments on time

If you decide debt consolidation is right for you, you should research lenders, read the paperwork and look at the terms and conditions before signing anything. A financial advisor can offer professional advice when dealing with debt consolidation. They can also give more information about Chapter 13 Bankruptcy.

Credit Counseling

Credit Counseling is an option for those struggling with debt. It can help with budgeting and provide advice on how to manage debts. Credit counselors aim to lower monthly payments by discussing new terms with creditors, restructuring payments, and finding cost-effective solutions. In some cases, they provide loans or grants to offset debt cost.

Debt Consolidation is another alternative. It combines all debts into one loan with a lower interest rate. Some lenders have direct loan programs, while others require a payment plan through an agency or a third-party. The benefit is one bill instead of multiple, but more may be paid overall due to the extended repayment period and higher interest rates.

Bankruptcy Alternatives Programs (BAPs) are for those who cannot qualify for Chapter 13. It offers debt relief without filing for bankruptcy. It involves submitting a proposal and negotiations between creditors and a representative from the debtor's organization/agency. This often results in reduced interest rates or settlements on certain debts without going to court.


Chapter 13 could be the answer to your money troubles. But, even if it's a viable option, you still have to do some important steps. Get help from a legal expert who knows the ins and outs of Chapter 13 and related matters.

A qualified lawyer can help make a payment plan, tell you what fees to pay, and guide you through the whole bankruptcy process. That way, your finances are safe.

Frequently Asked Questions

Q1: What is Chapter 13 Bankruptcy?

A1: Chapter 13 bankruptcy is a type of bankruptcy that allows individuals with regular income to develop a plan to pay off their debts. The plan typically lasts for three to five years and involves making payments to creditors through a court-appointed trustee.

Q2: How does Chapter 13 Bankruptcy work?

A2: Chapter 13 bankruptcy works by allowing individuals to create a payment plan to pay off their debts over a three to five year period. During this time, the debtor must make regular payments to the court-appointed trustee who will then distribute the payments to the creditors. The debtor will also have to attend credit counseling and complete a personal financial management course.

Q3: What are the benefits of filing for Chapter 13 Bankruptcy?

A3: There are many benefits to filing for Chapter 13 Bankruptcy, such as the ability to catch up on mortgage payments, the ability to keep certain assets, the ability to discharge certain debts, and the ability to stop collection calls and lawsuits.

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