5 Benefits of a 100% Chapter 13 Bankruptcy Plan over Paying Your Debts Independently
What is a 100% bankruptcy plan anyway? In most Chapter 13 plans, petitioners are able to reduce their repayment efforts to unsecured creditors based on their:
- Available income;
- Monthly expenses and;
- The amount of unsecured debts.
Their "pool" of unsecured creditors receives only a percentage of what they are owed based on the clients ability to pay. This is known as a percentage plan and can vary from 1% - 99%. A 100% plan indicates that the petitioner does not qualify for debt reduction based on their income and ability to pay. This Chapter 13 plan structures 100% of that client's debt to be paid back through the repayment process. So without debt relief, why not try to just repay your debts back on your own? Does the Chapter 13 still provide significant benefits? In most cases, we believe so.
Here are the unique benefits to filing a 100% Chapter 13 plan vs. trying to go it alone:
- Chapter 13 debt consolidation provides a structured repayment process for a finite time period - 36 - 60 months. It takes immense discipline to actually do that independently. Through the Chapter 13 you are debt free in 3 - 5 years.
- Through the Chapter 13 plan you are paying straight principal on the debt with no continued interest or late charges on unsecured debts such as credit cards, medical bills, personal loans, loan deficiency debt, etc. Without this protection, interest charges continue to mount and add to your debt even if you are working to pay it down. You could be taking 2 steps forward and one step back. The Chapter 13 bankruptcy points you in one direction - forward!
- You have court protection from any creditor actions. By filing a Chapter 13 Reorganization means that a rogue creditor can't pursue direct or accelerated collections through a garnishment and derail your budget. All creditors are bound to the repayment terms of the Chapter 13 plan.
- There is a good chance that all of your creditors may not file a Proof of Claim with the court. This claim is required if the creditor wants to participate in the plan and get paid through the process. Your creditors have 6 months to file a claim or they lose their rights. The responsibility is on them once they receive notice that you filed. Simply put, if they don't file a claim then they don't get paid. The court discharge at the completion of the program means that you are no longer legally obligated to pay on the debt even though the creditor didn't get paid and you did receive some debt relief even in a 100% plan.
- You can expect your credit to improve throughout the process with reduced debt load (debt-to-income ratio) and consistent and timely payments to your creditors. These 2 factors alone account for 65% of your credit score according to FICO.
- Bonus 6th benefit! Other debt restructuring tools that are available with the Chapter 13 plan:
- Reduce vehicle interest rate to a reasonable rate.
- Remove second mortgage or home equity loan, convert to unsecured debt and pay back at 0% interest.
- Possibility to reduce what you owe if you own a rental property....
Each person's circumstances are unique and their long term financial goals are different. If you are considering your options for debt relief, we encourage you to set up a time to meet with one of our Michigan Chapter 13 attorneys. We offer free consultation to discuss all of your available options for debt relief and we will make an honest and informed recommendation after reviewing your budget and income. The power is in your hands to find financial freedom through debt resolution. Call us today at 866-261-8282 to speak to an attorney today.