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If I use a credit counselor, will I get a better rating than if I declare Bankruptcy?

No, you will not. It will cost you less money and you will rebuild your credit rating faster if you file Chapter 7 or Chapter 13. Be cautious if you are considering using a credit counselor. Please note that many credit counseling companies are not regulated and implement unethical business practices.  The IRS has filed a number of lawsuits against "non-profit" credit counseling groups following the recent widespread abuse.

The Chapter 13 Repayment Plan

Are you trying to save your home from a foreclosure or is your car in danger of being repossessed? If so a Chapter 13 repayment plan may be the answer.

Chapter 13 is an interest-free debt repayment plan through which you consolidate your debts and make a payment on your debt over a 3 to 5 year period. While in a chapter 13 debt repayment plan, the creditors cannot collect from you, and the creditors are required by a Federal Court order to adhere to the terms of the plan.

One very important thing to remember about Chapter 13 is that you must be working or have a consistent source of income for your repayment plan to be approved by the court. Not only must you be able to pay for your monthly living expenses, but you must also be able to make a payment to the court to consolidate your debts.

Debts that are generally consolidated in a chapter 13 are mortgage arrears, balances on vehicle loans, student loans, credit card debts and other unsecured debts. All outstanding debts must be included in the Chapter 13 consolidation.

In a Chapter 13 bankruptcy, a payment plan is created and administered over a period of three to five years. The Chapter 13 plan is a proposal of what debts will be paid and over what period of time. To qualify for a Chapter 13, the debtor must have enough regular income to pay all of his or her living expenses as well as make payments under the payment plan. The plan must provide for the payment of priority debts such as taxes.  The plan must also provide that secured creditors, such as mortgagees be paid in full.  Any amount that is in arrears to the secured creditors must be paid back under the Chapter 13 plan.  In addition, unsecured creditors who file a claim, such as credit card companies, are usually paid in part or in full. The amount that unsecured creditors receive will depend upon the individual circumstances of the debtor. This determination can only be made after all of the facts of the case are carefully examined.

There are limits on how much debt can be owed in a Chapter 13 Bankruptcy. Unsecured debts, such as credit cards and medical bills, must be no more than $336,900 and secured debts, such as mortgages and car loans, must be no more than $1,010,650. These amounts are periodically adjusted to reflect changes in the consumer price index. Only individuals may file a Chapter 13 Bankruptcy or self-employed individuals with an unincorporated business may also utilize Chapter 13 Bankruptcy. Corporations or partnerships may not use Chapter 13.

As in a Chapter 7 Bankruptcy, a debtor that files a Chapter 13 Bankruptcy must complete credit counseling and an education course. The credit counseling and Personal Financial Management course can only be given by a court-approved organization. The credit counseling must be completed within the 180 days (6 months) prior to the filing of the bankruptcy petition. The Personal Financial Management class must be completed after the filing of the bankruptcy petition, but prior to the conclusion of the bankruptcy. A certificate of completion must be filed with the court.

Additionally, as with a Chapter 7 Bankruptcy, in a Chapter 13 Bankruptcy there is a hearing, which is known as the first meeting of creditors.  Again, although your creditors are invited to the hearing it is very unusual for any of them to appear. At the hearing the debtor is asked questions by the trustee. The trustee is appointed by the court and is responsible for ensuring that the debtor hasn’t committed fraud. The trustee must also look for nonexempt assets for the benefit of the creditors.  After all the trustee’s questions have been asked and answered satisfactorily, the trustee will close the meeting.  If the trustee does have further questions, he or she will schedule a second meeting.

In addition to the first meeting of creditors, in a Chapter 13 Bankruptcy there is also an additional hearing, called the confirmation hearing.  The purpose of this hearing is for the trustee to decide whether he or she will accept the Chapter 13 plan. If the plan is accepted, regular monthly payments on pre-petition debts will be made to the trustee, who will pay the creditors.  Post-petition debts will be made directly by the debtor to the creditors.

Through a Chapter 13 Bankruptcy a debtor can:

STOP FORECLOSURE IMMEDIATELY: If your home is presently in foreclosure, a Chapter 13 filing will stop the foreclosure any time prior to the sale, and allow you to repay your mortgage arrears through your Chapter 13. You will still be obligated to make all future mortgage payments directly to the mortgage company, but they may not foreclose to collect any outstanding mortgage payments.

SAVE YOUR VEHICLE: If your car is in danger of being repossessed, a Chapter 13 will also stop the finance company from repossessing your car. The past due payments and the entire balance on your vehicle loan will be consolidated into the Chapter 13, which you will pay off over the next three to five years. The vehicle finance company can no longer repossess your car, and you will no longer have to make a payment directly to the finance company. Only one payment is made, and that is to the Chapter 13 trustee.

STUDENT LOAN CONSOLIDATION: Although you may not eliminate student loans in a Chapter 7, you can consolidate them, with your other bills, in a Chapter 13 and stop collection action against you. All garnishments and collections will be halted related to student loan debts and your bills will be consolidated into a feasible repayment plan.

EFFECT ON COSIGNERS: Your cosigners receive the same protection that you receive under Chapter 13. Through a Chapter 13, we will protect your cosigners from collection activity, and the creditors must wait to be paid through the Chapter 13.

What should I do if I cannot make my Chapter 13 payments?

If the debtor cannot make a Chapter 13 payment on time according to the terms of the confirmed plan, the debtor should contact the trustee by phone and by letter advising the trustee of the problem and whether it is temporary or permanent. If it is a temporary problem and the payments can be made up, the debtor should advise the trustee of the time and manner in which the debtor will make up the payments. Significant changes in the debtor`s circumstances may require that the plan be formally modified. If the problem is permanent and the debtor is no longer able to make payments to the plan, the trustee will request that the case be dismissed or converted to another chapter. The determination of whether to modify, dismiss or convert a case requires the same kind of analysis as is needed for the initial decision whether to file bankruptcy and under what chapter.  If the debtor delays making a voluntary decision and cannot make the plan payments, the court may dismiss the case.

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