Real Estate Attorneys


Chapter 13 Bankruptcy

Chapter 13 Bankruptcy provides a method for repaying a percentage of your debts, interest free, over a period of time generally based upon your ability to pay.  A Chapter 13 allows you to stop foreclosures, catch up on past due mortgage payments, restructure your car loan and pay off your other debts according to a court approved plan of reorganization. In most cases, your monthly payments will be dramatically reduced.

A Chapter 13 “reorganization” is a powerful tool to assist in our overall analysis of troubled mortgages.  If a client would like to try and keep a home after they have fallen behind on their mortgage, a Chapter 13 will stop any foreclosure lawsuit and allow the homeowner / borrower to keep the home provided that they can make their payments to the Chapter 13 Trustee.

Alternatively, Chapter 13 allows a client to surrender their real estate in satisfaction of the secured debt (i.e., the mortgage).  Many times, due to the complexity and time required to sell the home off of the courthouse steps, a deficiency claim is never liquidated in time to file a proof of claim in a debtor’s Chapter 13 plan.  In such cases, the debt or deficiency is ultimately discharged and no money is repaid!  Even if the bank is able to sell the home quickly and file a claim, the total amount of the deficiency is rarely, if ever, paid back.  Instead, the borrower / debtor pays the bank pennies on the dollar, interest free, just as they do their other unsecured debts.

Why would I file a Chapter 13?

1. Save-a-Home. You are behind on mortgage or auto payments and you want to want to keep those assets.  A Chapter 13 will allow you to get current provided you complete the plan successfully.

2. Taxes. If you have tax debts, they may be very difficult to discharge in a Chapter 7 case. A Chapter 13, however, will allow you to pay the taxes back over the life of the plan while protecting you from wage and bank account garnishments.

3. Best Interest of the Creditors. In the situation where you would have some assets liquidated in a Chapter 7 case (i.e., non-exempt assets) and you’d like to keep those assets but still get the protection from your creditors that a bankruptcy would provide, a Chapter 13 would allow you to keep those assets if it is structured correctly.

4. Time Barred. If you have filed a Chapter 7 within the prior 8 years you cannot file another case until the 8 year period has expired. A Chapter 13 filing can protect you and your assets from the collection efforts of your creditors.

5. Student Loans. While you can’t discharge student loans or certain types of taxes in a Chapter 7 case, you can consolidate those debts in a Chapter 13 and put them into a manageable repayment plan.

6. Protect Co-Signors. You may have co-signers on debts that you want to protect so your creditors do not attempt to recover from them. If you had a friend, spouse, ex-spouse, or relative co-sign for you on a debt, your creditor would be paid through the Chapter 13 plan and the co-signer will be completely protected.

7. Disposable Income. As previously discussed, you may simply have too much income to qualify for a Chapter 7 case or you perhaps would rather repay the debt. A Chapter 13 would allow you to do that without having your back against the wall.

Chapter 7 Bankruptcy

Chapter 7 Bankruptcy affords you an opportunity to discharge debts, bills and financial obligations, while allowing you to keep exempt personal property. In most circumstances, this will allow most clients to keep most of their assets. A Chapter 7 Bankruptcy is designed to give families or individuals a fresh financial start without being burdened by old credit cards, bills and judgments.  However, as mentioned above, you do not choose the type of bankruptcy, you qualify for one.  Therefore, a consultation with a bankruptcy attorney is crucial in evaluating these options and determining whether you qualify for a Chapter 7, a Chapter 13, or neither.


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