When considering filing for bankruptcy, most people think only of Chapter 7, where you are not required to pay back your creditors. However, your financial situation may in fact be better suited to a Chapter 13. Are you struggling with sky-high interest rates on your car? Is your mortgage company threatening to foreclose on your home? In a Chapter 13, you are able to keep both your home and car through a repayment plan, even if those creditors have been unwilling to work with you in the past.
Saving Your Home
If you have fallen behind on your mortgage payments because of a job loss, illness, or unexpected expenses, you can put what you are behind on your mortgage (arrears) into your bankruptcy repayment plan. You will pay this amount over time, rather than the lump sum your mortgage would require otherwise. You will also be permitted to make your regular mortgage payments again. If you fall behind on property taxes, you can also pay those taxes through your Chapter 13 Plan.
Lowering Car Payments
If you have fallen behind on your car loan, you can include it in your Chapter 13 Plan and lower the interest rate substantially. We know that cars depreciate quickly. If your car was purchased more than two and a half years ago, you have the option to pay only the current value of the vehicle (called a “cramdown”). The rest of the amount owing on the car is paid as an unsecured claim, which only receives a percentage of the total amount owed.
Benefits of Chapter 13
Much like a Chapter 7, individuals who file under Chapter 13 are protected by the automatic stay. This is a bankruptcy court order that requires your creditors to stop attempting to collect from you. Once your Chapter 13 is filed, your creditors cannot call you, send you letters, file lawsuits against you, or garnish your wages.
A Chapter 13 is a great tool for individuals who now have a regular paycheck but have fallen behind on bills due to unemployment or medical issues. You may have tried to get back on track on your own, but have found that your mortgage company or car loan creditors are unwilling to work with you. The benefit of a Chapter 13 is that the bankruptcy code requires creditors to accept your repayment plan as long as it meets the bankruptcy code’s requirements. You should consult with an experienced bankruptcy attorney who can assist you in understanding how a successful repayment plan can help you.