A Chapter 13 bankruptcy allows a person to reorganize their debt by making payments that are significantly less, in most cases, than what they were paying before. And it does it in several ways:
- First, you are only required to pay a certain interest rate to most creditors and right now in most cases it is 5.25%
- Secondly, in many instances you are able to lower the amount that you pay down to the value of the collateral rather than the balance that is owed. So that usually reduces the principal that you pay out.
- Thirdly, you are often able to increase the term over which you pay your creditors to a period up to 5 years.
- And finally, debtors are often able to lower the amount that they pay to their unsecured creditors down to literally pennies on the dollar, if they qualify. At any rate, you are able to pay your unsecured creditors often at zero percent interest.
So with those four tools, a Chapter 13 debtor has the ability to lower their payments to a budget that they can afford while continuing to keep the things that they need in order to reorganize.
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