What Is Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy is different from what most people think of as the classic straight bankruptcy, in which the debtor liquidates everything and pays creditors. Chapter 13 allows a debtor to keep all of the assets in their bankruptcy estate and enter a repayment plan instead.

Because of this, Chapter 13 becomes an advantage in that the debtor is often able to keep things they wouldn’t normally be able to keep, such as a house that’s going to foreclosure or a car that is going to repossession. As assets in a Chapter 13 bankruptcy, they can often be saved, whereas in Chapter 7 they may be sold, with the money distributed to creditors.

Can I Just Refinance My Home to Stave Off Foreclosure?

Sometimes that may be possible, but usually, if the debtor is at the point where they are considering bankruptcy, they usually have more problems than just the delinquent mortgage law. Yes, if that’s your only issue, it might be worthwhile to consider refinancing or working that out with a mortgage broker or lender. However, most of the time, there are other problems.

It’s rare that people are just late on one thing. Most often, they are dealing with several things at once, and they have had some financial difficulties that are causing problems in other areas of their life. If you just want to file bankruptcy to save your house and you don’t have any other financial problems that might not be the best idea.

IN addition to helping you keep your house, there are a lot of other things a Chapter 13 bankruptcy can do.  For instance, you might be able to strip a second mortgage off of the house, or you might be able to lower your car payments, or the amount due on your car. You may even be able to discharge much or even most of your unsecured credit card debt and things like that. There really are many benefits to a Chapter 13 bankruptcy.

What if I Owe taxes to IRS or State?

Taxes are more complicated than your other debts, because they’re an exception to discharge. However, while a Chapter 7 will not discharge your outstanding taxes in most cases, a Chapter 13, while not discharging them, may allow you to structure payments in a way that allows you to repay them in a way that prevents them from garnishing you or putting a lien on your property.

Can I Still Get Credit While I am in a Chapter 13?

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The simple answer is no. When you go into a Chapter 13 bankruptcy, your case is assigned to a     bankruptcy trustee, who administers the bankruptcy estate. The trustee is the person to whom the debtor makes payments and who then distributes those payments to your creditors, so it’s necessary for the trustee to give permission for such things as taking on additional credit. If the loan is for a reasonable amount and for a reasonable expense it won’t mess up your budget, the trustee might approve it.

Can a Chapter 13 Change My Mortgage or Car Payments?

When it comes to the mortgage, it depends how you want to do it. There is a wide range of things that can happen, but in general, if you are behind on your mortgage, then you’re going to have to make up the arrears as well as keep up with payments going forward, so you should count on having to continue to pay at least the amount of the current mortgage payments.

In some cases, it’s possible to work with creditors to alter those amounts during bankruptcy proceedings; it goes with the territory of negotiating with creditors, so it’s something that can be done and worked with in a lot of cases.

That last part is true when it comes to the car payment. It depends on how long you have left on your car loan and whether you are behind on the payments. For instance, one thing that’s possible in Chapter 13 is what’s often called a “cram-down” for your car loan. What that means is that if your car is worth a lot less than the balance that’s due, you can “cram down” that amount, so that what you owe the creditor will be closer to what the car is actually worth, rather than what the balance due.  In doing so, if you are able to make the payments back to the Chapter 13 plan, you can sometimes stretch those out. For instance, if you have a couple of years left, then you could stretch those payments out over a five-year period, which would, in turn, lower your monthly payments.

For more information on Chapter 13 Bankruptcy, please call (801) 441-2013 today to set up a free initial consultation. Get the information and legal answers you’re seeking.

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