Chapter 13 Bankruptcy
The primary goal of a Chapter 13 bankruptcy is to consolidate your debts and set up a manageable monthly payment. However, most likely you are only paying back a small portion to your unsecured creditors. Chapter 13 bankruptcies are extremely complicated, and it is highly advisable that you retain a bankruptcy attorney to file your petition and guide you through the process.
A Chapter 13 Bankruptcy is filed to:
Stop Foreclosures and Repossessions
When the debtor is behind and wishes to catch up on home mortgage payments and/or car loans, Chapter 13 bankruptcy can spread out your delinquency and help you catch up to keep your home and car. IIn the meantime, by filing Chapter 13 bankruptcy, your scheduled foreclosure sale is canceled and any car repossession action is stopped.
Catch Up on Your Mortgage Payments
If you are behind on your mortgage(s) and can now resume the regular mortgage payments, Chapter 13 restructures the amount you are behind on your mortgage(s) for up to a 5 year repayment plan. We can set it up so your mortage arrears are paid back at 0% interest over your 3-5 year Chapter 13 plan.
Discharging Second Mortgages
In some cases, Chapter 13 bankruptcy can get rid of your second mortgage. If the current value of your home is less than the balance of your first mortgage, you can petition a bankruptcy judge to strip the second mortgage from your home and have it considered a general, dischargeable, unsecured debt, just as if it is a credit card debt or medical bill. This is a big reason why some debtors choose to file a Chapter 13 — to wipe out an entire second mortgage!
Restructure/Lower Payments on Certain Non-Dischargeable Debts
Debtors can sometimes restructure their payments for car loans and even lower the car loan balance to the fair market value of the vehicle (if the car loan originated least 2 1/2 years ago). This is known as a “cram down.” If you have a high interest rate on a vehicle loan, we can most likely lower it. Further, if you rolled in negative equity into your car loan, even if it was less than 2 1/2 years ago, you can pay back less than the current balance on the loan. Chapter 13 bankruptcy can also restructure back child support, delinquent taxes and certain other non-dischargeable debts.
Other Important Characteristics of a Chapter 13 Bankruptcy Include:
Chapter 13 Payment Plan
In a Chapter 13 bankruptcy, you are required to make monthly payments to a trustee for up to 60 months. The first payment is due 30 days from the date your case is filed. Depending upon the type of debts you are including in the Chapter 13 plan, you may be making payments for little as 36 months, at which time you would have completed all obligated payments in your Chapter 13 bankruptcy, and your case will be completed. The amount, length of time, and structure of these payments are complicated and depends primarily upon the type(s) of your debts, your monthly income, and your monthly expenses. Most plans range from 36-60 months. During a consultation with our office, we will advise you of all the details of your Chapter 13 payment plan if you so choose to file.
Keeping Exempt Property
As with filing a Chapter 7 bankruptcy, unless you have assets of significant value and/or with significant equity, most people keep all of their property in a Chapter 13 bankruptcy. If you own a home with no more than $40,000 of equity ($50,000 for joint filers), have furniture and household goods of average value and are willing to keep up your car payment(s), you will most likely keep all of your personal property. Retirement accounts (401k, IRA, etc.) are also exempt property you would retain during the Chapter 13 bankruptcy. Even if you have more equity than what the exemptions allow, many debtors choose to do a Chapter 13, keep their non-exempt assets, and pay back their unsecured creditors a portion of the debt they're owed, in exchange of keeping the asset/s.
As with filing a Chapter 7 bankruptcy, after you sign the Chapter 13 petition, the payment plan and schedules prepared for you by us, and we will electronically file all documents with the clerk of the United States bankruptcy court. Immediately upon filing, a protection order is entered by the court to protect you from all creditor action. The bankruptcy court orders all creditors to stop all harassing phone calls, lawsuits, threats, judgments, repossessions, and garnishments. This protection order is known as the “Automatic Stay.”
How Chapter 13 Affects Homeowners Behind in Their Mortgage Payments
A Chapter 13 is often preferable for homeowners who are in arrears on their house payments and are facing a possible foreclosure. Under Chapter 13, the debtor has up to 60 months to cure an arrearage so long as the current mortgage payments are being made. Also, the debtor may have an opportunity to market and sell the residence rather than lose the homestead equity in the house to a foreclosure.
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