A Government sponsored debt consolidation plan your clients can live with

By Wesley Scott posted 08-05-2020 13:12

A lot of attorneys don't know this but there really is a government sponsored debt consolidation plan. Under Title 11 of the US Code you can find Chapter 13 Bankruptcy. Chapter 13 Bankruptcy is a government sponsored debt consolidation plan. Now, if they really called Chapter 13 Bankruptcy a "government sponsored debt consolidation plan" no Minnesotan would ever choose to do anything but a Chapter 13 Bankruptcy. You see, traditional debt consolidation plans have short comings that a Chapter 13 Bankruptcy doesn't have. First, in most traditional debt consolidation plans, you have to pay all your creditors in full. Second, whatever debt does not get paid off is taxable to you as income. Third, creditors are not bound by the terms of a traditional debt consolidation plan. Hence, you could have someone do traditional debt consolidation only to have 2 of the debtor's 10 creditors say we are not doing this, and garnish your client's wages, and then the entire plan fails. 

Chapter 13 is quite different. First, in the vast majority of Chapter 13 Bankruptcies, clients are NOT required to pay all debt in full. In fact, I would be willing to guess that the vast majority of Chapter 13 plans currently in progress, less than 20 cents on the dollar gets paid toward debt. The balance of the unpaid debt gets "discharged" at the end of the 3-5 year Chapter 13 plan. Second, any unpaid debt not only gets "discharged" (wiped out) it gets wiped out tax free! Third, all creditors are bound by the Chapter 13 plan once the plan is confirmed by the bankruptcy court. 

Wanting to pay all your debt is a noble endeavor. But noble endeavors don't always end well. When the client is faced with protecting their family or creditors, clients should always protect their families first. That is what a Chapter 13 Bankruptcy does. If you have any questions see us online at www.kainscott.com. Wes Scott