The #1 Way Catch-Up, Consolidate, & Keep Your Stuff
Bankruptcy may allow you to get rid of most of the common types of unsecured debts, like credit card debt, medical bills, bank loans, finance company loans, and credit union loans. It may also get rid of unsecured debts left over from a divorce, a failed business, personal guarantees, trade creditors, and even certain income taxes over 3 years old.
If you qualify, Chapter 7 generally lets you get rid of these debts completely. Chapter 13 may or may not require you to pay a portion of this debt. Under the new bankruptcy law, we have found that many clients qualify to pay zero cents on the dollar, just like in Chapter 7. The new “Means Test” isn’t all that mean, and that’s good news for good, hard working Americans.
Reasons to file Chapter 13 instead of Chapter 7
Why would anyone in his or her right mind file a bankruptcy under Chapter 13 (which requires you to pay back a part of the debt), when you can file Chapter 7 and get released from all of it?
- Chapter 13 may require less money “up-front”: In Chapter 13, you attorney can get paid through your Chapter 13 payment plan, so that if the attorney chooses to do so, he can file your case and then wait to get paid by the Chapter 13 Trustee. This way, you can get your bankruptcy case filed with less money up-front.
- You can get rid of a broader range of debts: Chapter 13 of the United State Bankruptcy Code provides what is known as a “superdischarge”. This allows you to get rid of debts, other than alimony and child support, that you are obligated to pay by reason of a Separation Agreement or Court Order. Section 11 U.S.C. 523(a)(15) does not apply in Chapter 13.
- You can use Chapter 13 to “catch-up” on a car, truck or house loan: You cannot do this in Chapter 7. In Chapter 13, the amount needed to catch up these types of loans is factored into your Chapter 13 plan, to be paid out the creditor over a series of months or years. Chapter 13 plans generally range from 3 to 5 years in duration, which gives you plenty of time to bring these debts current.
- You can file bankruptcy and still keep property, even if you do not have enough “exemptions” to cover it: When you have more property than you can protect with available exemptions, Chapter 13 may be the answer. You can factor into your Chapter 13 payment plan enough money to cover this extra equity. This lets you file bankruptcy and still keep this valuable property.
- Chapter 13 stops foreclosures and repossessions: As long as you make your required Chapter 13 plan payments, creditors are not allowed to continue with efforts to foreclose on your house or repossess you car or truck.
- Sometimes, you just have too much income to file Chapter 7: You are not eligible to file bankruptcy under Chapter 7 if you have too much income. There is no clear rule to determine this, but experienced bankruptcy attorneys know what will and will NOT fly with their local Bankruptcy Court Judge. Under Chapter 13, you may consolidate your credit card debt into a payment based upon what you can afford to pay. Interest on your credit cards is wiped out. Thus, your payments are significantly reduced, resulting in more money in your pocket.
- You can “strip off” a totally unsecured mortgage: Let’s say that your house is worth $100,000, and that the payoff on your first mortgage is $105,000. Let’s say you also have a second mortgage on your house for $20,000. In Chapter 13, you can file papers to “strip off” the second mortgage. The only requirement is that there is not a single dollar of house value to “secure” it and that you stay in your Chapter 13 case to completion.
- The “Cram Down” Benefit of a Chapter 13 Bankruptcy: A major benefit of Chapter 13 bankruptcy is that it allows you to lower the amount that you owe on many “secured” debts. The ability to lower the amount is called “cram down”. Secured debts are those debts where you have pledged as collateral things that you own, such as a car, truck, furniture, business equipment, or house. Instead of paying what you owe, you are allowed to pay only the value of the items serving as collateral.
- You Can Reduce The Interest Rates On Most Secured Debts. Another great benefit of Chapter 13 bankruptcy is that you can reduce the interest rate that you have to pay on most secured debts. Many people have car or furniture loans where they agreed to pay interest at rates as high as 15 to 30 percent, and sometimes even more. In a Chapter 13 bankruptcy, you only have to pay interest at the prime rate, plus 1 to 5 percent.
- You can completely avoid the hassle, expense and risk of dealing with Reaffirmation agreements on vehicles you want to keep.