People sometimes find themselves in a bind when it comes to the bills they accumulate over some time. Filing for bankruptcy is the route people are forced to take when fixing to lose everything they own. There are different types of bankruptcy claims, and the most popular is filing Chapter 13. Bankruptcy is designed to give people a new and fresh start to rebuild their credit while not losing necessary items like their homes or cars. Many people get confused, thinking it wipes out debt to where a person does not have to pay off what is owed. This is not the case. The debt must be repaid, but there are ways to cover the payments over three to five years.
How Does Filing Chapter 13 Work?
Filing Chapter 13 can assist debtors with their mortgages on their homes, car payments, furniture payments, unsecured debts like credit cards, hospital bills, and some payday loans or personal unsecured loans. It does not pay off the loans or keep the person from paying anything. On the contrary, it is designed to split payments on what the debtor is behind over a few years. The attorney will work with the debt collectors and cease harassing phone calls and letters from them. In most cases, it can halt foreclosure on a home or repossession of a vehicle or items purchased on credit.
Over time, the person’s credit will rise as the payments are disbursed through the debts. Some of the unsecured debts will have less payment where the client will not have to pay the entire amount. Sometimes they pay only 75 percent of the bill, which is wiped off as paid. This is because it wipes out the interest accumulated over time. Everything is tallied up into the amount the debtor owes throughout everything and split into an affordable price. The attorney handles the payments, and the debtor pays the attorney handling the case. Filing Chapter 13 works best for most people because the client does not have to pay the entire upfront cost of attorney fees like they do when filing Chapter 7. The attorney fees are tallied up with the amount owed and paid over several years. However, most attorneys will have a small upfront fee, which is reasonable, like $50.
Other Payments Chapter 13 Covers
In Alabama, Chapter 13 will also help those behind on Child Support payments or taxes owed. The laws are strict across the country regarding being behind on these payments. Many will face jail time or garnishments. Once again, the amount owed is put into an average monthly payment plan over three to five years and can save the client from jail time or more fines to bury their credit. It is essential not to fall behind on these payments, but life gets in the way sometimes, and people fall behind on what they owe. For those who are trying, many find Chapter 13 the most efficient way to get out of debt or at least catch up on payments.
It can be embarrassing to file for bankruptcy, but the alternative can become more devastating by losing possessions, jail time, or wage garnishments. Some companies do not want garnishment paperwork and will release the employee if they have court orders for credit reasons.
A Fresh Start
The most aggravating thing to deal with is the debt collectors that harass those who fall behind in their payments. Once a person files Chapter 13, the law requires all debt collectors to stop dealing with the client. The attorney handling the bankruptcy case is the only one that can speak with the debt collectors. If the debt collectors continue to harass the client, they violate the law and will have to pay a fine, possibly one that will wipe out the debt owed. This is where they draw the line, keeping the debtor safe from harassing calls and letters.
Many people worry about their credit scores. Those who faithfully fulfill the payment plan agreement in the Chapter 13 filings will either get caught up in their payments or pay off what is owed. Over time, the credit score will go up, but most creditors ask if there was a bankruptcy claim within the last seven years. It does affect the credit score, but it only takes a couple of months to slowly build up the numbers once the payments are caught up. After seven years, all credit starts over fresh. Once the payments are made through the agreement, some attorneys can get with the credit report companies and remove the derogatory remarks. All it takes is a letter from the attorney.
The Advantages Outweigh the Embarrassment
If a person is behind on payments, they should not delay or wait till foreclosure or repossession. If they cannot make the payments on time, they should get with their attorney right away to start the process. There is no 100 percent guarantee that the person will not lose their home or possessions, especially if they wait till the last minute. Filing Chapter 13 early can salvage what they own.
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