Chapter 13: Court sponsored debt management program

Debt management with judge's help


Ads abound for “debt management”, “debt consolidation“, “credit counseling“, all playing into the stress that the financially over- committed  live with.

Over and over, people say they want desperately to pay back their debts, if they could get reasonable terms.  One on one, their creditors refuse.

Debt repayment, without the need to negotiate with your creditors or pay another entity, is available in Chapter 13.

It comes without the pitfalls of out-of-court programs and is enforced by a federal judge.

Its cost is the court’s filing fee; your attorneys fees as allowed by the judge; and the trustee’s commission.

Chapter 13 requires creditors

No creditor can refuse to go along with a confirmed plan.

Chapter 13 plan payments are based on what is available in the debtor’s budget after reasonable living expenses. Some “debt consolidation” plans advertised on TV provide that half of the debtor’s take home goes to the consolidator. Some such programs are outright scams.

Even when the promoters are honest,  most debt management plans fail.

The typical debt management model  puts the first couple of your payments into their pocket.  They have no way to keep creditors from calling you, or even suing you.  Many creditors say flatly that they don’t participate in debt management programs.

The negative credit reports continue.

Most participants find that

The “set up fee” in bankruptcy, if you will, is the court’s filing fee of $274. The ongoing cost is the commission of the trustee, calculated at a percentage of the payments you make to the plan, usually between 4 and 10%.

At the end of the bankruptcy case, the dischargeable debt is no longer enforceable.

Better still, there are no tax consequences to the cancellation of debt in bankruptcy, as there are in debt management programs.



Image courtesy of sarawestermark

About the Author
Northern California bankruptcy lawyer Cathy is a 30+ year veteran of bankruptcy practice in the Silicon Valley. She is known for energetic representation of clients and her command of bankruptcy law.