Does Chapter 13 Debt Consolidation Really Work?

Posted on Nov 14, 2014 By Ed Woods

Attorney Ed WoodsProspective clients sometimes ask me this question. These individuals come to us all the time with all manner of thoughts and ideas about how a debt consolidation under Chapter 13 works, doesn’t work, or should work. Often, such notions have come to the prospective client through things they hear from others who have “been through it” and “it didn’t work” for them. Sometimes these prospective clients get their impressions about debt consolidation under Chapter 13 from the internet or other media. While the internet can be a wonderful thing, it is also full of misinformation and bad advice about debt relief. Even in this high tech age in which we live, it is my humble opinion that the best way to get reliable information about debt relief is through direct contact with a competent and experienced attorney who can review your personal situation and discuss your options with you.

How Chapter 13 Can Work For You

Like many other endeavors in life, there are plenty of reasons why a debt consolidation under Chapter 13 might fail. But we’re not going to focus on why a debt consolidation under Chapter 13 might not work for you. Rather, we’re going to focus on what debt consolidation under Chapter 13 is and how it can work for you. The big idea behind Chapter 13 is to identify what you can actually afford to pay to all of your creditors based on your household income and expenses. So, basically, a Chapter 13 case is centered on three personal numbers. The first number is the amount of your net household income. The second number is the amount of your reasonable and necessary monthly living expenses, e.g, food, utilities, insurance premiums, and the like. The third number is calculated by subtracting the second number from the first number. If that result is positive, you’re off to a good start in Chapter 13. We even have a special name for that third number. It’s called your “disposable income”. In most cases, the law requires that you pay all of this disposable income into your Chapter 13 plan. Also, there are rules about how much certain types of creditors, e.g., mortgage and car creditors, must be paid. So, you must have enough disposable income to cover the minimum amounts that must be paid to these creditors. You have up to five years to complete all your payments into your Chapter 13 plan and your payments are usually made on a monthly basis or made each pay period.

Debt consolidation under Chapter 13 has both immediate and long term benefits for you. The immediate benefits include full protection from all of your creditors while you are paying into your plan. This means you cannot be sued, garnished, or lose property to repossessions and foreclosures. This immediate benefit usually leads to another immediate benefit – stress relief. The long term benefit of debt consolidation under Chapter 13 is permanent debt relief. If you successfully complete your plan, you will emerge from your case debt free even if the total balances owed to all your creditors was not paid in full through your plan. All those creditors you owed when you filed your case, with a few exceptions, are now legally satisfied and cannot take any further action on their debts. All unpaid balances are wiped clean. Common exceptions include long term mortgage debt and certain types of “non-dischargeable” debt like student loans. This permanent debt relief is the primary goal of debt consolidation under Chapter 13.

There are a number of things you can do to maximize your chances of successfully completing your Chapter 13 debt consolidation plan. First, make sure that you choose an experienced attorney to represent you. While the basic idea behind debt consolidation is pretty straightforward, the actual process can sometimes get technical and there are some pitfalls to avoid. Not all attorneys can skillfully guide you through this process so ask any prospective attorney lots of questions about his or her experience with debt relief law. Competent, experienced debt relief attorneys will be happy to answer your questions. Avoid any attorney who will not or cannot answer your questions about the process. Second, make sure you fully disclose to your attorney your entire financial situation including a complete listing of your assets, debts, income, and expenses. In other words, be “brutally honest” with your attorney about your entire situation. Do NOT hold back information from your attorney. Doing so usually backfires on you. The law does not allow you to pick and choose what goes into a debt consolidation plan. It’s an “all or nothing” process. The rewards are great but the price is full disclosure. Third, prepare yourself and your family to “tighten the belt” a bit while you are paying into your plan. There are likely to be lean times ahead; but, you are working towards a substantial goal. Every passing month gets you a little closer to your ultimate goal. When you achieve that goal, you will most likely look back and determine that the sacrifice was worth it.

So, the answer to the original question is yes. A debt consolidation under Chapter 13 can and does work for many people and it can work for you too if you meet the basic requirements. Our attorneys are experienced and we are ready to help you successfully consolidate your debts and get the full benefits of debt consolidation. You can meet with any of our attorneys free of charge for your first visit. At that visit, we will examine your personal situation and make recommendations about how we can help you. You are under no obligation to us after that first visit. If you wish, we can get started right away or you can give the matter additional consideration before starting. The choice is yours. If you’re wondering if a debt consolidation might be right for you, go ahead and give us a call. We’ll be happy to discuss it with you.