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 hapter 13 bankruptcies are a type of debt consolidation allowing you to reorganize your finances by consolidating your debts into one monthly payment. Chapter 13, however, should not be confused with traditional debt consolidation programs that are frequently advertised on television. Unlike traditional debt consolidation, Chapter 13 has the power of the Federal Bankruptcy Code behind it and provides many advantages for people seeking debt relief. Below is a brief summary of its advantages.
The Automatic Stay
When you file a Chapter 13 bankruptcy, you receive the immediate protection of the automatic stay, a Bankruptcy Court injunction that prevents almost all collection activity against you. The stay has the power to stop foreclosures, repossessions, garnishments, license suspensions, and creditor harassment. Traditional debt consolidations do not have the same power -- there is no court order protecting you. Your creditors cannot be forced to stop their collection activity. Therefore, if you chose the traditional debt consolidation route, your creditors may continue to harass you. . . and are not required by law to honor any agreements that you have negotiated with them.
Includes Most Types of Debt
Most traditional debt consolidations only allow specific debts to be consolidated in the payment plan, and don't usually consolidate mortgage arrears, late car payments, tax debt, and child support arrears. All of these debts can be included in a Chapter 13 bankruptcy, consolidating your debt into one monthly payment and providing protection from ALL of your creditors. In short, you may pay your arrearages over the course of time, typically over three years, INSTEAD of having to come up with the arrearage all at once to prevent the foreclosure or repossession of your secured asset.
Drastically Reduced Total Amount of Debt
 ubject to certain qualifications, a Chapter 13 bankruptcy will allow you to pay as little as 20% of the unsecured debt. Your reduction in principal owed allows you to pay your debts off more quickly than you could through other consolidation plans. Traditional debt consolidation programs merely attempt to negotiate with your creditors. The creditor may lower the interest rates or balances but are not required to do so. When a Debtor files for Bankruptcy, the creditors have no choice -- the Federal Law dictates that the creditors must adhere to the plan.
Definite Time Period
Chapter 13 Bankruptcies are usually between 3 and 5 years in length. All dischargeable debts are eliminated at the completion of the bankruptcy. Traditional debt consolidations allow may potentially drag on for years without significantly lowering your balances.
No Interest or Late Fees
Upon filing Chapter 13, any debt in existence prior to the filing does not accrue any more interest, late fees, or over-the-limit charges. All of the money you pay toward your unsecured debt will generally be applied toward principal, drastically reducing the amount of time it takes you to repay your debts.
Attorney Working in Your Best Interests
 our Chapter 13 attorney has a legal and ethical obligation to zealously represent your best interests. The debt consolidation companies have no such obligation. In fact, they are private companies who are advocating their own rights and are after one thing: profit. Thus, in a Chapter 13 Bankruptcy, you have the opportunity to have a bankruptcy attorney represent only your interests whereas many debt consolidation programs are private entities, sponsored by creditors and don't have the same strict legal requirements to protect borrowers' best interests.
Protects Equity
A Chapter 13 Bankruptcy does not require you to post any collateral in order to consolidate. Many traditional debt consolidations or home equity loans require you to risk your home and property if you can't afford the monthly payments.
Debts are Eliminated if the Creditor Doesn't File A Proof Of Claim
Each creditor must file a proof of claim with the Bankruptcy Court if they are to be paid through the plan. Frequently, not all creditors listed in a Chapter 13 Bankruptcy file a proof of claim. As long as you finish the terms of your Chapter 13 debt repayment plan, all unfilled claims are eliminated and never have to be paid back.
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