A Chapter 13 Bankruptcy is a government sponsored debt consolidation program. It is government sponsored debt consolidation program because it is contained under Title 11 of the United States Bankruptcy Code. Built into federal law is a government sponsored debt consolidation program that can be used by many Americans as a tool to get a handle on their debt problem.
In the vast majority of Chapter 13 Bankruptcies, debtors are only required to commit their disposable income to the benefit of their creditors over the course of a 3-5 year plan. At the end of the plan, whatever unsecured dischargeable debt remains gets discharged, tax free. Some debt doesn’t get discharged even though it is unsecured debt. Child support, alimony, and student loan debt are some examples.
So how does a Chapter 13 Bankruptcy work? Say you had disposable income of $300.00 per month and you had 50k in credit card debt. You pay $300.00 per month to a Chapter 13 trustee who collects $10,800.00 over a 3 year plan. The balance of the unpaid debt--$39,200.00 gets wiped out, tax free, forever. Is that a great deal or what? I think it is.
One of the attributes of a Chapter 13 Bankruptcy that I think is really appealing is the fact that all creditors are legally bound to your Chapter 13 plan. While in the Chapter 13 Bankruptcy, creditors cannot try and collect from you in anyway including garnishing your wages or placing a levy on your bank account. This is good for a debtor to know because in traditional consolidation plans there are typically not such protections.
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