In my Chandler, Arizona office, I’ve sat with many people with questions about Chapter 13 bankruptcy. A Chapter 13 bankruptcy is sometimes referred to as a “reorganization plan”. With that type of name, it begs the question, “What’s the difference between a Chapter 13 bankruptcy and a debt consolidation company?”
The most important difference between the two is THE AUTOMATIC STAY. Once your bankruptcy case is filed, the Automatic Stay is, well… AUTOMATIC. It is protection from creditors, prohibiting any creditor from suing you, obtaining a judgment, garnishing wages, foreclosing on your house, repossessing your car or other personal property and protects you from their overwhelming phone calls. THIS is why you see, “STOP FORECLOSURE, STOP WAGE GARNISHMENT, STOP CREDITOR PHONE CALLS”, when you read about bankruptcy. The Automatic Stay is such an important and basic right of a debtor (YOU) and is not available outside of bankruptcy. Debt companies do not tell you this and so, here’s how I’ve seen those type of debt companies work:
John is drowning in debt, but he wants to pay it back. He thinks that doing so will be better for his credit report and conscience. So he calls one of those phone numbers he hears on a radio commercial (you know the ones: “Don’t file for bankruptcy, call us! We have secrets creditors don’t want you to know”). Well, it sounds so promising; John thinks he’ll give it a try. He talks to a super nice representative at the debt company – we’ll call it “Company” for now. John is supposed to pay monthly fees to “Company” which will be automatically withdrawn from his checking account. “Company” has promised that once enough money is collected from John, “Company” will begin making settlement offers and his debt will be paid off in a couple of years. This sounds great to John, and he signs the papers, gives his checking account number and his money starts flowing to “Company”. Creditors are supposed to be notified, but there is nothing obligating the creditors to agree to be part of “Company’s” plan. Eventually, (usually after thousands of dollars have been paid into John’s consolidation plan – yes, after a year or two) a creditor decides they’ve waited long enough, and they sue John. The creditor gets a judgment and starts wage garnishment proceedings. John calls “Company” to cancel his service, stop automatic withdrawals from his checking account, and get a refund of any money that wasn’t used to settle with creditors. This is difficult. Now, John can’t find that original super nice representative. Instead, he talks to people who are often rude and unsympathetic to what is happening to him. They often make it very difficult to cancel, sometimes even failing to stop their automatic withdrawals. Worst of all, the clever folks at “Company”, drafted their contract to require “Company’s” fees be paid first – meaning most (if not all) of the money paid by John over the months or years, is non-refundable. That’s when John calls me and files for bankruptcy.
Bankruptcy, on the other hand, is a legal process, set in place for people just like John (and you). It’s a legal right to discharge debt that has become too overwhelming. When you file for chapter 13 bankruptcy:
- You will have an attorney, bound by ethical rules to be YOUR advocate, and keep YOUR best interests in mind at all times.
- Your attorney is also required, by bankruptcy law and state ethical rules, to set forth a written contract specifying what the attorney will do for you and how much it will cost.
- You will have TRUE legal protection from all of your creditors through the “Automatic Stay.”
- If any creditor crosses the line, you have your advocate working for you to stop those creditors, and you have the law on your side.
- You will have someone working to protect your assets and ensure an affordable and realistic payment.
- At the end of your Chapter 13 Plan, any unpaid unsecured debt, is discharged.
Contact me to get started.
