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Why Chapter 13 Bankruptcy Vs. Debt Consolidation?

Many families are facing difficult economic times and may not qualify for a Chapter 7 bankruptcy either because sufficient time has not passed since their last Chapter 7 bankruptcy discharge or they cannot qualify under the means test. A Chapter 13 bankruptcy allows you to make monthly payments to repay all or a portion of your dischargeable debts in 3 to 5 years by making one payment to the bankruptcy trustee who will disburse the payments to your creditors. In most cases, your payment under Chapter 13 will be significantly less than what you would pay if you continued to pay each of your creditors separately. Many people have seen advertisements for debt consolidation programs that also are based on monthly payments, which can make it confusing to understand the difference between a debt consolidation program and a Chapter 13 bankruptcy.

Generally, a Chapter 13 bankruptcy has a significant number of advantages over a debt consolidation program. At The Shakoori Law Office, we will carefully evaluate your financial situation to determine whether a Chapter 7, Chapter 13, debt consolidation program or some other alternative is best for you. Some common advantages of a Chapter 13 bankruptcy over a debt consolidation program are provided below:

Protection of the Automatic Stay: Once a Chapter 13 bankruptcy has been filed, creditors are required by law to stop most debt enforcement activity. The stay prevents or suspends wage garnishments, bank account levies, collection judgments, repossessions and foreclosures (unless formal relief is sought and granted). The automatic stay will also stop harassing phone calls and letters from collection companies and creditors. There is no such legal protection from creditors provided by debt collection programs.

Protection of Family Home: A Chapter 13 protects your family home from foreclosure or repossession as long as you make the plan payments. You may have significant equity in your family home which can be protected by making Chapter 13 plan payments. Your home becomes an asset that is effectively protected under the plan with a Chapter 13.

Elimination of Debt: A Chapter 13 is a plan that allow you to extinguish your debts by paying off the debts or a portion of the debts over a three to five year period. Once the Chapter 13 plan is completed, you emerge from the bankruptcy with a discharge and free of debt. Debt Consolidation programs often result in consumers paying for long periods of time without making a significant reduction in the outstanding balance.

Protecting Most Important Assets: A Chapter 13 plan prioritizes the payment of creditors so that a family's most important assets like a car and home are paid first and protected against repossession or foreclosure. Unsecured creditors are paid after secured creditors, which helps a family keep their vehicle and family home. A Chapter 13 plan also addresses all creditors whereas a debt consolidation plan typically only includes certain types of creditors.

If you need debt relief, the Shakoori Law Group can help. We offer a free no obligation initial consultation so that we can review your assets, debts and income and assess your options. Our knowledgeable attorneys will discuss your options and the advantages and disadvantages of each strategy. We can answer your questions about Chapter 7 bankruptcy, Chapter 13 bankruptcy, debt consolidation programs and other viable options. We have helped hundreds of families just like yours throughout Orange County and Southern California. The Shakoori Law Office is conveniently located in Santa Ana, California and assists clients throughout Southern California including but not limited to the following: Santa Ana, Tustin, Fullerton, Orange, Anaheim, Irvine, Newport Beach, Costa Mesa, Fountain Valley, Huntington Beach, Westminster, Garden Grove, Orange, Buena Park, Placentia, Yorba Linda, Irvine and throughout Los Angeles, Riverside and San Bernardino Counties. Call today for your no obligation free initial consultation 800-578-0922.

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  • Tustin
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