One might think that the answer to that question is “nothing,” but that’s not true. It is sometimes worthwhile for debtors to file chapter 13 New York bankruptcy intending to pay their creditors in full even if the discharge isn’t really necessary—a filing referred to as a 100 percent repayment plan. Obviously it doesn’t happen often, but especially since chapter 7 is means tested, more high-income debtors must use chapter 13. Here are some reasons to promise to repay all creditors:
(1) For high-income debtors who have significant unsecured debts, one attractive feature of chapter 13 is long-run savings. So long as the planned payments to the trustee are full and timely, any accrued interest, late fees, and penalties are waived and only principal payments are made. In this sense, chapter 13 bankruptcy is better than a consolidation loan for unsecured debts.
(2) In some instances, debtors intending to repay their debts in full will find that some creditors don’t file proofs of claim to show that they’re entitled to payments from the plan. Since a 100 percent repayment plan results in a discharge anyway, some debtors prefer to cancel the debts rather than repay them.
(3) Many debtors don’t file bankruptcy primarily to discharge their debts. For example, debtors might need the automatic stay to prevent a foreclosure that they can cure and resume payments because they’ve found a new job that pays a higher income.
(4) Similarly, chapter 13 also offers debtors the opportunity to “cram down” their automobiles’ value even though auto loans are secured debts. Unfortunately, the Bankruptcy Code doesn’t allow debtors to do that with a house, but it’s still a reason to consider chapter 13.
(5) There are minor reasons to opt for a 100 percent repayment plan, like the fact that if you can repay the debt in fewer than three years, the minimum 36-month duration requirement for the repayment plan will be waived. Also, bankruptcy courts are likely to approve 100 percent repayment plans compared to ones that compensate fewer creditors.
100 percent repayment plans are viable options for debtors in certain circumstances, but obtaining their substantial benefits requires the skills of an experienced New York bankruptcy lawyer.
For answers to more questions about bankruptcy, 100 percent repayment plans, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Chapter 13 bankruptcy lawyer Brooklyn NY Bruce Weiner for a free initial consultation.