The Smiths own one vehicle that is worth $4,000.00, but $7,000.00 is due on the loan.  They owe income taxes to the Internal Revenue Service and to the Franchise Tax Board (California) in the total amount of $10,000.00.  They also owe $15,000.00 in various unsecured credit card debts, medical bills and signature loans.  Mr. Smith has lost his job and is on permanent disability.  How can a Chapter 13 help this family?

In this situation, based on their income and living expenses, the Smiths can propose a 0% Chapter 13 Plan, which would pay the value of the vehicle (with interest) and the taxes, but eliminate the unsecured debt and the unsecured portion of the vehicle loan (the amount greater than the value.) Their plan payment would be approximately $285.00 per month for 60 months.

Bottom line:  The Smiths are eliminating $15,000.00 in unsecured debt and a great deal of the interest and penalties associated with overdue taxes. They get to keep their car and wipe out $3,000.00 on the loan.