[COLUMN] How Chapter 13 can reduce your debt and make your monthly payments affordable

Are you struggling every month to pay your debts, especially your credit card bills? Are you always worried about not having enough left over for your mortgage, rent, food and other basic living expenses after you make your monthly debt payments?  Do you want your credit card payments to be more affordable and manageable?

One type of relief provided by our legal system to people in debt comes from Chapter 13 of the Bankruptcy Code.  This is commonly known as “Chapter 13 Debt Consolidation or Debt Adjustment”.

It is generally available to individuals and small business owners. It is called a “consolidation” because it allows you to combine your debts into one monthly payment.  But it is also called “debt adjustment” because in a lot of cases, certain debts included in the Chapter 13 repayment plan can be “adjusted” down or reduced so that you do not have to pay them in full.

Let’s say you owe $30,000 in credit cards. Most credit card companies require a minimum payment of 3% of the outstanding balance every month.. Thus, on the above amount, let’s say that you are required to make total minimum payments of at least $900 per month (3% of $30,000) to keep your account in good standing.

Now let me remind you that making minimum payments ONLY each month is guaranteed to keep most people in debt for the rest of their lives.  The reason for this, obviously, is the high interest rates that the credit card companies are charging you.

As much as 80-90% of your minimum monthly payment can go to interest alone and this is why you will never get out of debt. Only a very small portion of your payment goes to paying off the principal.  Of course, the banks and the credit card companies love this and are getting richer every month at your expense.

So, in our example above, let’s say it costs you $900 just to make minimum monthly payments on your credit cards. However, you are living paycheck to paycheck and you are struggling very hard to make your payments each month.  As a matter of fact, you are always paying late and you are getting calls from bill collectors all the time.  You are afraid that sooner or later, you will get sued by creditors and that your wages will be garnished.  And then you’ll be in deeper trouble.

You’re sick and tired of being in debt and you realize that you need help.  You’re confused and don’t know what to do.  The only thing you are sure about is that you need some type of debt relief because you don’t see your financial situation getting better anytime soon.

Well, you may be a good candidate for Chapter 13.  Of course, individual situations vary.  But generally, in Chapter 13, you only pay based on what you can afford each month.  The court looks at your income and your monthly living expenses and determines if your proposed monthly payment is in your and the creditors’ best interests.

Thus, if the Court determines in this situation that all you can afford to pay each month is, let’s say, $300 or $400, this would be your Chapter 13 monthly payment.  Depending on your income, you may pay for 3 to 5 years, although 3 years is typical for people with lower income.  Now you may wonder: “If I am only paying $300-400 per month for 3 years, that means I won’t be able to pay all my debts in full, correct?  What happens to the unpaid balance after 3-5 years?”

Well, that is exactly one of the great benefits of Chapter 13. First, you pay 0% interest on credit cards and most debts.  Secondly, once the court approves your proposed $300-400 monthly payment, that is all you would be obligated to pay.

After 3-5 years, all your payments are considered “payment in full” and the rest of your debts simply get wiped out.  You can consolidate all types of debts in Chapter 13: credit cards, personal loans, late mortgage or car payments, property taxes, income and other taxes, student loans, back child support, etc.

Compare the benefits of Chapter 13 (0% interest on credit cards and most debts, lower payments, reduced debt amounts, pay off debts in as little as 3-5 years) vs. trying to pay your debts on your own and paying the outrageous interest rates being charged by the banks and the credit card companies.  You will be amazed at how much easier it would be for you to finally get out of debt with Chapter 13.

Maybe you need to rebuild credit and start saving again.  Or perhaps purchase a home one day like what others have done. Your financial future may be at stake. Don’t procrastinate.  If your debts have become unmanageable and you need legal help, find out whether Chapter 13 may be beneficial to you.

Disclaimer: In a typical Chapter 13 case, my clients are often able to cut their debts in half (or even more!) especially if they have limited income. But of course, cases vary, and I will need to review your individual situation to see if you qualify for a debt reduction. For a free attorney consultation, call Toll-Free 1-866-477-7772

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The opinions, beliefs and viewpoints expressed by the author do not necessarily reflect the opinions, beliefs and viewpoints of the Asian Journal, its management, editorial board and staff.

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None of the information herein is intended to give legal advice for any specific situation.  Atty. Ray Bulaon has successfully helped over 6,000 clients in getting out of debt. For a free attorney evaluation of your situation, please call RJB Law Offices at TOLL FREE  1-866-477-7772.

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