The major benefits of a Chapter 13 bankruptcy are it allows you to catch up a mortgage and saves a home from foreclosure. Often you can strip second mortgages or heloc loans in the process. It may even be cheaper to file a Chapter 13, if a Chapter 7 can’t remove the second mortgage and the Chapter 13 will. 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. It also 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.
Often a temporary disability and the 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. This is sometimes necessary to help you because the foreclosure will proceed even while you are filing for a short sale or mortgage modification. This process of both pursuing the foreclosure while they process a mortgage modification or short sale is called dual tracking. Mortgage companies do it a lot while they are talking about helping you save your home.
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 all 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 over 90% 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 about 25,000 in exemptions in the property. If you don’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.