Debt consolidation & late fees
Aurora Illinois Bankruptcy Lawyers & Attorneys
Jesse Barrientes: I want to talk just a little bit and maybe you can help me about that is what we talked a little bit earlier about the consolidation. There's a lot of companies out there that are telling people that their debts can be consolidated and without filing a bankruptcy.
David Siegel: Consolidated and paid back for less than the total amount due.
Jesse Barrientes: That's right.
David Siegel: Yeah. There are a lot of companies like that and you have to be careful, Jessie, 'cause a lot of those folks, debt settlement companies are taking a fee up front from an individual before they've even paid or settled anything with the creditor. So it's kind of a way where some people think they're gonna end their debt nightmares and their financial problems through a non-bankruptcy remedy. But they should be very careful because those debt collection companies, debt settlement companies don't have the ability or the strength that Aurora bankruptcy attorneys have under Chapter 13 bankruptcy laws.
For example, a debt settlement company cannot force a creditor to accept a settlement. So let's say half the creditors agree and half don't. The individual who thinks he or she is paying off their debt can wind up being sued by one of the companies that won't accept the settlement, whereas in Chapter 13 they either have to accept it or their debt's eliminated. So it has a lot of strength in Chapter 13 that does not exist in debt settlement.
Jesse Barrientes: Well, what happens – so basically Chapter 13 is the true consolidation that has some teeth behind it.
David Siegel: Chapter 13 is the absolute, bottom-line debt consolidation reorganization plan where if creditors don't want to be part of it the debt is eliminated in full. And a lot of creditors don't choose to be part of it because they feel they're just not gonna receive much back. For example, if a creditor gets a notice that the plan – the repayment plan is gonna pay 10 cents on the dollar a lot of folks, companies, creditors don't feel it's worth their while to fill out the forms – be part of a plan where they might get 10 cents on the dollar towards the back end of a three- to five-year plan.
Jesse Barrientes: And so that debt then is completely eliminated.
David Siegel: Completely eliminated as long as it's an unsecured debt that would be dischargeable otherwise.
Jesse Barrientes: That would be dischargeable in Chapter 7?
David Siegel: Correct.
Jesse Barrientes: What happens, for example, with respect to the interest in all that stuff in a consolidation outside of bankruptcy?
David Siegel: Well they try and cut down the interest. The try and work out payment plans. And they do have relationships with some creditors where that does happen. But the problem comes in by the fact that not every creditor is gonna want to cut a deal and be subject to a debt reorganization or a debt settlement plan. Chapter 13, the creditor has to abide and the interest is cut off. The only interest that a debtor pays, typically, is a four to five percent administrative fee that the Chapter 13 trustee gets for their duties of administering the payments each month.
Jesse Barrientes: So the interest is cut off then. What about late fees?
David Siegel: Late fees are cut off. Interest is cut off. Over limit fees are cut off. The creditor basically – we're talking about a credit card company here basically files a proof of claim for what's owed. Let's say it's $10,000. They are paid back $10,000 and that's it. Sometimes less than that but never more than that. They don't get interest except in very rare cases where the individual has so much property that the trustee figures they should pay interest because they have the ability to pay it off.
Jesse Barrientes: And that's a rare and a unique situation.
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See Also:
Chapter 7
Misconceptions about Chapter 7
Life after Chapter 7 bankruptcy
Privacy is protected in bankruptcy
Household income qualifications
Converting Chapter 13 to Chapter 7
Converting Chapter 7 to Chapter 13
Chapter 13
Using Chapter 13 to save a home
Choosing Chapter 13 versus Chapter 7
Debt consolidation & late fees
Administrative fees & the bankruptcy trustee
Chapter 13 payment plan dismissal
