If only the credit card companies would lower our payments a little, we could make them!
Many people with good jobs have a hard time paying their debts.
They have a house, car(s), and plenty of things a middle class household in America typically has.
Things on the surface look good, but they can no longer make the minimum payments on their credit card debt.
So they call their creditors and try to get them to lower the payments.
That does not usually work.
And even if the creditors agree, the result is an even longer repayment period than before.
Often these people have too many assets or too much income to file a Chapter 7 bankruptcy, so they don’t even inquire as to other options that might be available.
The thing I hear most from these clients is: “If only the credit card companies would lower our payments a little, we could make them!”
More importantly, they want to make the payments, but the big card companies and other creditors usually won’t bend.
CHAPTER 13 FORCES CREDITORS TO ACCEPT WHAT YOU CAN AFFORD TO PAY
I have filed many Chapter 13 cases where my clients are repaying 100% of their unsecured debts.
Why would they do this (you might ask)?
Because in Chapter 13, you pay ZERO interest on your payments.
That’s right, zero.
You have to pay the Trustee a portion of what is disbursed, but it is significantly less than the high interest being paid on credit cards and similar debts.
That should also eliminate the moral objection some have to filing bankruptcy.
Can’t afford to pay 100%? No problem. Your budget and asset values control the amount you have to pay in Chapter 13.
You make payments for 36-60 months. Your income for the 6 months prior to filing will primarily determine how long your plan payment must be in Chapter 13.
At the end of the plan term, if you make all your payments, you get discharged from any remaining debts.
And you can do this regardless of whether the creditor already has a judgment against you or not.**
YOU KEEP ALL YOUR ASSETS IN CHAPTER 13
Another benefit in Chapter 13 is you do not lose any property.
You get to keep your house, your cars and anything else you own.
However, you must pay your unsecured creditors more than they would get if you filed a Chapter 7 case and your assets were sold.
Thus, if you have non-exempt assets, (assets which have a value for which you do not have a legal exemption for) you will need to pay at least that non-exempt portion to your creditors.
A bankruptcy attorney can do the necessary calculations to determine what your payments need to be (but obviously if you’re paying 100%, that’s enough).
Why Struggle Paying Debts With High Interest Rates?
It makes no sense, either from a financial or moral standpoint, to continue to pay credit card and other unsecured debts year after year with no end in sight.
Even if you can afford the minimum payments, you are not really paying off the debt.
You’re just paying interest (or mostly interest).
Chapter 13, and bankruptcy in general, give you the means to resolve your debts in a manner that is fair to both you and your creditors.
And for those who can afford to do so, doing a 100% repayment is a perfectly legitimate reason to file a Chapter 13 case.
Both sides benefit, and you can thereafter move on with your life instead of being swallowed by interest for the remainder of your time here.
Not everyone is eligible for Chapter 13. There are debt limitations ($394,725 of unsecured debt and $1,184,200 of secured debt) and a few restrictions.
But a consultation with a bankruptcy attorney will reveal what options are available to you.
Always explore your options.
**If the creditor already has a lien against property you own, more may need to be paid and/or the lien may be removed under certain circumstances.
Image courtesy of Wesley Fryer