Chapter 13 of the federal Bankruptcy Code, also known as a wage-earner repayment plan, is a court-protected and court-supervised debt consolidation program. It allows individuals with regular income to propose to the court a repayment plan, usually drafted with the assistance of an attorney, to repay all or part of their debts in monthly installments over a period of three to five years. If the bankruptcy court approves the plan, you must pay one lump sum to a trustee each month who will, in turn, portion it out to the appropriate creditors. Oftentimes, your monthly payment will be significantly lower than the sum of your individual debts because a Chapter 13 bankruptcy can stop interest and penalties from accruing on certain debts as well as allow you to pay back some debts partially. Perhaps one of the most favorable aspects of a Chapter 13 debt consolidation plan is that it will allow you to keep your property. This can be especially helpful if you’re in danger of losing your home or car because you’re behind on your payments. You’ll be allowed in a Chapter 13 debt consolidation plan to catch up on your delinquent payments and bring your mortgage or car payments current. As long as you adhere to the payment terms of your Chapter 13 debt consolidation program, your creditors will not be allowed to interfere as you fulfill your financial obligations. Upon completing a Chapter 13 debt consolidation plan, you’ll be released from the liability of all discharged debts, regardless of whether they’ve been paid in full or not. Be aware that a Chapter 13 filing remains on your credit report for seven years. If you want to sustain a good credit standing, there are private debt consolidation programs available that can help reorganize your debts when you don’t need court protection.
