The most commonly needed and important benefit the stay and time.
The most important and often needed benefits of a Chapter 13 bankruptcy is it allows you to catch up a mortgage or auto loan. The temporary court order that stops collections is not so temporary in a Chapter 13. The protection of the stay which stops collections lasts for 3-5 years. It allows you time to catch up the mortgage or car loan. It gives you time to complete a mortgage modification or sell the home. The attorney costs are cheap when it is compared to the cost of losing the home and your equity or the cost of moving.
Bankruptcy is often caused by what is just a temporary event
Often a temporary disability or medical expenses will force someone into bankruptcy. But you can take up to 5 years to catch up a mortgage or car loan after you have been temporarily out of work. Filing a Chapter 13 or any bankruptcy will at least delay the foreclosure. Sometimes Chapter 13 is necessary because the foreclosure will proceed even while you are filing for a short sale or mortgage modification.
The process of both pursuing the foreclosure while they process a mortgage modification or short sale is called dual tracking. Mortgage servicers do it a lot while they are talking about helping you save your home. This is because mortgage servicers earn their fees from collecting late fees. There are no late fees after the loan is up to date. The mortgage servicer or collection agency works for himself or mortgage company not you. Use your attorney.
The ability to strip a second mortgage or cram down an auto
Often you can strip second mortgages in the process or cram down a car loan. The interest in a Chapter 13 for your car can be reduced to 15 over the till rate which in 2017 is about 5%. If a Chapter 7 can’t remove the second mortgage and the Chapter 13 will it may be cheaper to file the Chapter 13.
A Chapter 13 may allow you to pay back what the car or home is really worth if you have negative equity. A car loan would have to be over 910 days old. If the auto loan is not over 910 days old you may still cram down a car if it is a commercial vehicle or if the loan did not finance the purchase of the auto. If the auto was refinanced it may be crammed down. First mortgages on your residence cannot be stripped but commercial mortgages or vacation homes can be.
Other Benefits of a Chapter 13 Bankruptcy
For some people who have filed a Chapter 7 within the last 8 years a Chapter 13 may be the only option for them. A Chapter 13 bankruptcy allows you to pay off an income tax debt and stops income tax penalties and interest from continuing to accrue. If you are single or have no children as a couple and make over 100,000 Chapter 13 may be your only option. Persons who make too much money and which have little or no necessary expenses are required to repay something.
Chapter 13 allows you to pay back unsecured debt with only what you can afford often less than 10%. Debt settlement companies will rarely go below 50%. Priority debts such as taxes and child support are paid in full before secured debt and the last debts to be paid are the unsecured debts with what is left over.
Your ability to fund the Chapter 13
A person only needs to prove they can afford a monthly payment into the Chapter 13 plan and that the plan is feasible. The income has to be steady but it can be from child support, social security or wages. In fact, a Chapter 13 is often called a wage earner plan but any income can be considered in determining whether you have enough to pay back the mortgage or car loan over time.
Some people who earn high wages may be forced into a Chapter 13 plan because they have disposable income. If you have disposable income after necessary and reasonable deductions are taken from your income then you are required to file as a Chapter 13. However well over 95% of people qualify for a Chapter 7 if they want to file as a Chapter 7.
A Chapter 13 must pay back any priority income taxes and child support within the 3-5 year period. You may need to file a chapter 13 if you don’t have enough exemptions to keep a non-exempt asset. You and your spouse may keep a 200,000 home if you have about a 150,000 mortgage in Kentucky because each of you may claim about 25,000 in exemptions in the property. If you didn’t have that 150,000 mortgage you would lose the property in a Chapter 7 or be required to repay 150,000 in a Chapter 13.
An experienced attorney can sit down with you and plan the best long-term solution. If your debts are discharged at the end of the Chapter 13 you will have no personal liability just like a Chapter 7. But for many people who only need to stop a foreclosure the discharge may not be needed. Often the only reason for filing is to save a home. Once the payments are caught up or you have obtained a mortgage modification, workout, forbearance the bankruptcy may no longer be needed. Often a Chapter 13 is filed to prevent a sale but you must plan with your attorney early to prevent problems. Remember the mortgage company will talk about a mortgage modification while they pursue a foreclosure. For a free consultation give us the call 502-625-0905.