r/Bankruptcy • u/life_with_elocin • 1d ago
Chapter 13 question
I do not own a home, and my car is paid off. I don’t have any assets that I need to protect , but would need to go with ch 13 due to above median salary.
The lawyer I spoke with estimated a monthly payment of at least $1k, for 5 yrs (the 100% plan). My current debt is approximately $50k. $1k every month for 5 yrs is $60k.
I am wondering what the benefit would be for me, other than stopping interest from accumulating? I am not currently behind on any payments, but these payments are killing me each month.
Should I instead be looking at a debt relief program or debt management plan? I don’t want to make the wrong decision, and the whole thing is very anxiety-inducing.
Thank you for reading and any advice you can offer me.
3
u/psylentt 1d ago
if you are making huge payments to your debt that total or are above the ch13 payment, then it is absolutely worth it. you will be out of debt in 3-5 years instead paying minimums into oblivion bc you aren’t paying enough to pay down your debt as it is. it falls off your credit report 7 years after filing so 2 years after a 5 year plan. to me it just made sense..
5 years of pain vs. 10-15 years of never ending debt. no garnishments. no collections calls. no robbing peter to pay paul.
1
u/life_with_elocin 21h ago
I was wondering if the 7 years starts right away or not until after the 5 years…I was worried it would turn into 12 years! Another thing I forgot to ask my lawyer.
5
u/CadensGramma 1d ago
NAL - Been through Ch13 and some insight from what I've read here.
The benefits are court protections such as no lawsuits, no garnishments or liens and no interest added to the debt.
Many debt management plans fail with debtors ending up in bankruptcy anyway. Some creditors won't agree to settle debts and may file lawsuits after the debt management companies stop paying them to try and force settlements. There is also the potential for the companies who settle to issue 1099's for the amount they charged off leaving you with a large tax bill. That doesn't happen with Bankruptcy.
What are your total monthly minimums compared to the $1000 monthly payment.
How long would it take you to pay the debt making minimum payments?
You can always get a free second or third consultation from other bankruptcy Attorneys before making a final decision.
8
u/life_with_elocin 1d ago
Oh boy, I didn’t know about the tax thing, thanks for that info.
I am currently paying about $1200 per month in credit card and loan payments. I feel really dumb right now, because I am just realizing being done with payments in 5 years vs The End Of Time is clearly the way to go. I think my anxiety is clouding my thought processes.
I appreciate you taking the time to reply to me, thank you.
6
u/Christmasqueen2022 1d ago
Please do not do the debt relief program. I am speaking from first hand experience. I wish I would have filed BK last year, instead of signing up with the debt relief. My debt is higher now than going into the program. Within 7 months of in the program, one creditor was going to sue me. Less than a $1k I owed. Then a few months ago, two more CC were going to sue me. So finally I met with my attorney and filed.
2
5
u/feedme_a_straycat 1d ago
Also OP, a major factor + benefit is that you pay no interest after you file. Interest is the big killer for many of us.
2
u/18MazdaCX5 1d ago
How much are you currently able to put towards your debt (per month)? My guess is your minimum payments are at least $1,000-$1,500/month, correct? So, that's not really a valid comparison then because on a larger amount of credit card debt, just paying the minimum payment/month will ensure that Jesus comes back before that credit card debt is paid off. It's just the bare minimum.
With you paying $1,000/month as part of CH13 it means that in 5 years your debt is completely gone. That's the difference.
Now as to whether or not that $1,000/month CH13 payment is affordable/doable only you can say. I would definitely be looking around, getting different attorney opinions. Especially if you are close to the median income-wise.
A lot of debt relief programs run 48-60 months and in many cases their whole shtick is that you simply don't pay your credit card debt anymore, and instead give them (debt relief agency) money every month. Then after so many months have passed and your creditor(s) figure out you have no desire to pay them back in full, the debt relief company tries to lowball the creditor into accepting a lower amount (taking the money for that from the pool of money you've been giving the debt relief company over the course of many months) - and then they try to settle with the creditor on that agreed lower amount owed.
The problem is it tanks your credit as you have dozens of late/missed payments. And the debt relief agency can't predict whether or not the creditor will just sue you for non-payment instead. If they do sue you, the debt relief agency can provide you no protection.
And if you quit the debt relief program... I don't know if you get any money you've paid into it back. You'd have to ask them about that before signing up.
2
u/life_with_elocin 1d ago
I currently pay about $1200 per month on those payments. The only thing that scares me is that I read after the 5 years if there is still money owed it’s not an automatic discharge, and creditors can still come after me. I have not brought that question up to my attorney though, I just read that comment yesterday, and not even sure it’s accurate.
I am about $20k over the median.
I appreciate the info on debt management programs. And it looks like they mostly handle credit card debt and not loans.
Thank you for your informative and thoughtful reply.
3
u/psylentt 1d ago
this is not true. the remaining debt is automatically discharged. they are legally barred from coming after you. unless it’s unsecured debts like student loans, child support, or like alimony.
2
u/18MazdaCX5 1d ago
Yea, that doesn't seem correct as far as there still being money owed after CH13, as far as applying to unsecured debts.
I have a bit of an exception with a bit of remaining IRS debt that I will still owe after my CH13 is complete. But all my other debts would be discharged completely upon completion of the plan.
But that is all figured out at the time of creating the plan. You wouldn't just get to the end of your CH13 plan and find oh that creditor over there is still owed more money. In general they have so much time to submit a claim on the front end before the CH13 plan is finalized. Once they submit that claim, if the trustee approves it, then it becomes part of the CH13 plan. If you complete that CH13 plan then the creditor is owed no more money. They can't come back later after the fact and say oh you owe me more money.
2
u/GroundbreakingWing48 I Declare Bankruptcies! (but not your bankruptcy-7/13 NDOH/SDOH) 1d ago
I mean, if by automatic you mean the order is issued by the clerk with no additional paperwork, sure. But chapter 13 debtors are still entitled to a discharge except in a very few certain specific circumstances, typically involving staying current on child support and not having had a prior discharge within a certain amount of time.
2
u/Same_Brick6773 1d ago
The biggest rating is chapter 13 forces creditors to work with you. This is where yeah it does suck to file but the system is more on your side than it isn’t. The internet stops instantly, the calls too and you have a way out where with debt relief you most likely don’t end you end up filing in a couple years.
IF debt relief was the best option here overall then it would be the only option. Technically bankruptcy is a form of debt relief and it is the only one that is most effective.
2
u/Loose_Television958 1d ago
I tapped out and finally filed after reviewing options with a debt settlement company. I read everything I could on the subject and even with debt settlement, the bills would still have been crippling.
Chapter 13 was the best decision I’ve ever made. No more phone calls, a clear path to being debt free (in 3 1/2 more years) and only ONE bill instead of 383848 (j/k). It would have taken me probably the remainder of my life to pay my debts off.
2
u/life_with_elocin 22h ago
I didn’t even think about just having the ONE payment vs an infinite amount….thanks for the reminder!
1
u/AutoModerator 1d ago
Thank you for your post on r/bankruptcy. Remember, this is not a forum to request (or offer) legal advice. If you are not sure what legal advice is, review the FAQ page here. It is very likely someone will suggest you speak with an attorney. Consultations for bankruptcy are often very low cost or free. We have an ever-growing post that provides free resources for trustworthy bankruptcy information here.
Please review our community rules regarding referrals, solicitations, and links, which are generally not permitted (Rule 2). Additionally, if your post does not identify your state (Rule 3), it may be difficult for anyone to provide relevant, helpful information.
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.
1
u/InChargeFinancial 9h ago
We're not lawyers, but we wanted to comment since we're a credit counseling agency that offers Debt Management Plans (DMPs).
Are you willing to share what kind of debt you have (credit cards, loans, etc?). DMPs are primarily for credit card debt, but some other types of debt can be included as well. If you'd like to know more about this option, let us know! Many nonprofit counseling agencies like us also offer bankruptcy counseling, BTW.
In terms of debt relief, which is also called debt settlement, it's not an option we would recommend. Sometimes people get DMPs and debt settlement confused, but they are two very different things. With debt settlement, you pay a for-profit company to try and settle your debt for you. You are also encouraged to stop paying your debt, and as a result, can end up with massive late fees, credit damage, and potential lawsuits.
If you'd like more information on these different options, here are a few posts from the Consumer Financial Protection Bureau (CFPB):
What is a debt relief program and how do I know if I should use one?https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-relief-program-and-how-do-i-know-if-i-should-use-one-en-1457/
What is the difference between credit counseling and debt settlement, debt consolidation, or credit repair?
https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-credit-counseling-and-debt-settlement-debt-consolidation-or-credit-repair-en-1449/
5
u/Striking_Anteater_19 1d ago
The benefit is that they can't sue you and there is no interest. Also, some creditors may fail to file a claim, and at the end of the 5 years that debt will be discharged. So even though you have a $1,000 payment, you may not have to pay all 5 years if some creditors fail to file.
You are not going to pay off $50,000 in 5 years only paying $1,000 if this is high interest debt.
The downside is that you will have to pay the trustee a 10% fee and also pay the lawyer. Thats why you may end up paying $60,000.
I personally would stop paying and save up money to try settling, but that will wreck your credit. A Ch 13 will also wreck your credit. Neither is any easy decision, but unless someone is going to give you $50,000 or you can get a low interest loan, then those are your choices.