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What can you do with a Chapter 13?

A Chapter 13 bankruptcy is unique in that it offers a repayment plan that can be individually tailored to meet your needs. Within certain broad rules, you can repay some debts on your terms, and discharge debt that you don’t have to pay!

  1. Stop foreclosure, repossession, and harassing creditor calls

A bankruptcy will almost always immediately stop any repossession, foreclosure, or harassing creditor calls. This is true for any chapter of bankruptcy. But, did you know that if you file your bankruptcy as a Chapter 7, you may not be able to switch chapters later on, to take advantage of benefits not available under Chapter 7? Alternatively, if you file under Chapter 13, you have a unilateral right to convert or dismiss your case any time you want. In an emergency situation to stay a foreclosure or repossession, filing a Chapter 13 bankruptcy is the safe way to go.

  1. Get caught up on mortgage arrears

A Chapter 13 bankruptcy is maybe better known as a “reorganization” type of bankruptcy. In a Chapter 13, the court allows you to repay whatever needs to be repaid over a 3 to 5 year period, while still discharging any debt you don’t need to pay.

If you want to keep your house, you will need to get caught up on that mortgage somehow. One way to get current on the arrears is include them in a Chapter 13 Plan. This takes the total amount of the arrears, and breaks them into monthly payments over 36 mos (3 years) or 60 mos (5 years), depending on what works best for you. One of the greatest benefits of using a Chapter 13 to get caught up on arrears is that you will stop incurring late fees and penalties!

If monthly payments on the arrears isn’t a feasible option for you, a Chapter 13 bankruptcy can also buy you time to get a loan modification or sell your house and avoid a foreclosure.

  1. Get rid of that second mortgage!

In some cases, a Chapter 13 bankruptcy can help you wipe out your second mortgage entirely! People used this tool substantially in bankruptcy when property values declined. With values now increasing, it isn’t used as often, but it is still an important tool in the bankruptcy tool box.

  1. Get caught up on your car loan

If you are behind on your car loan, you can get caught up through a Chapter 13 bankruptcy. A Chapter 13 Plan will take the balance left on the loan and break it up into monthly payments over a 3-5 year period. This usually results in the Chapter 13 monthly car payment being less than your current monthly car payment! Filing a Chapter 13 will also immediately stop the financing company from repossessing your car.

Has the financing company already gotten your car? If they haven’t sold it at an auction, filing a Chapter 13 may allow you to even get your car back after repossession!

  1. Reduce the interest rate on your car loan

A Chapter 13 doesn’t require you to pay the high interest rate you got with your loan. The purpose is to help individuals reorganize debt in an affordable manner, how would an unreasonably high interest rate help you do that? Chapter 13 bankruptcy allows you to set the interest rate you pay on your car loan to the national prime rate, plus 1.5% for risk factor. Usually, the Chapter 13 interest rate is substantially less than your current interest rate.

  1. Reduce the amount you owe on your car loan

Do you owe more on your car than it is currently worth? In some cases a Chapter 13 Bankruptcy plan will allow you to pay only the market value of your car! This will reduce the overall balance of the loan, and results in thousands of dollars in savings to you.

  1. Sometimes, you can even get rid of your car loan completely!

In some specific cases, the Chapter 13 will even allow you to strip the lien on your car!

  1. Repay your taxes – on your terms! Even freeze interest and penalties!

One of the best uses for a Chapter 13 Bankruptcy is to help taxpayers get control of their mounting tax debt. Too many times when we owe taxes, we are unable to easily get them paid off due to the constantly accruing interest and penalties. Even if you enter into a repayment agreement with the IRS, they may be charging you for interest and penalties. This means you are paying the federal government more than you need to!

A Chapter 13 plan will freeze the interest and penalties, and pay the taxes off over the duration of your plan in monthly plan payments. You may even be entitled to a discharge of some of your tax debt.

  1. You don’t make too much money to file

I talk to a lot of people who say they just make too much money to file for bankruptcy, but not enough to keep up with their debt. I understand the frustration and feeling overwhelmed, but this is simply not true. Even if you make too much money to file a Chapter 7 bankruptcy, a Chapter 13 will allow you to pay a portion of your disposable income to unsecured creditors, and discharge the remaining balance of your debt to them. It is very similar to the concept of debt settlement, where you pay pennies on the dollar, but takes the power to accept your offer away from the creditors who got you in this situation in the first place. Because you are proposing the debt settlement within the bankruptcy, it is up to the Bankruptcy Court and the Trustee to accept or reject the plan. And the Bankruptcy Court will never make you pay more than you can afford.

A Chapter 13 bankruptcy is one of the most versatile tools in a bankruptcy attorney’s arsenal. It restructures debt that needs to be paid, like taxes or a house or car you want to keep, while offering all of the advantages of a traditional liquidation bankruptcy.

The important thing with a Chapter 13 is to plan ahead. If you are being charged late fees for a debt now, it is important to talk to an attorney about the advantages of filing sooner rather than later.

Also, if you are facing foreclosure, an emergency bankruptcy can be filed just before the sale, but you may end up paying more in legal fees to get it filed on time. As with all legal matters, planning ahead of time will get you the greatest bang for your buck.

Why you shouldn’t choose the cheapest bankruptcy attorney

If you are a consumer right now looking for an attorney to help you file for bankruptcy, you have almost endless options. Many attorneys practice bankruptcy in conjunction with other areas of law, and some even solely practice bankruptcy. With so many options, it may be tempting to find the attorney who will quote you the lowest price, and feel like you are getting the best bargain for your money. Sometimes, though, the cheapest bankruptcy attorney isn’t always the best bargain! If you don’t carefully choose the right attorney, you could lose out on important legal rights and benefits, and even end up paying back more money than you have to!

Here are some things to consider when you are researching and meeting with attorneys, to make sure you do actually get the best value:

Do you have other legal issues that may impact or help your bankruptcy?
Filing for bankruptcy can be used as a tool to help other legal problems you may have. Most bankruptcies are filed as a result of death, divorce, or disability. If you are getting divorced, it may help your divorce case to file bankruptcy together before the final divorce decree is entered, or separately after. If you are elderly, or have an aging family member, with a substantial amount of debt, it may help probate move more smoothly to file for bankruptcy. If you are being sued for any reason, bankruptcy may be the quickest and cheapest way to resolve that lawsuit, as well as any other debt you may have.
A good attorney will consider how bankruptcy can help or hinder other legal cases you are or may be involved in. It is important for you to discuss these legal cases with an attorney, and equally important for the attorney to consider how the other case will play out with a bankruptcy.

Does the attorney only handle one type, or Chapter, of bankruptcy?
Many attorneys only do Chapter 7 bankruptcies. This is because a Chapter 7 is generally very easy, and the attorney doesn’t need to have a detailed understanding of bankruptcy law. This can result in the attorney filing a Chapter 7 for you, when there may be better options! Other chapters of bankruptcy allow a person to reduce interest rates on some loans, get caught up on delinquencies through payment plans, and sometimes even discharge the loan completely. While you may technically qualify for a Chapter 7, you may benefit more from exploring other types of bankruptcy filings. An attorney who doesn’t handle other types of bankruptcy likely doesn’t have the necessary knowledge to determine which chapter is the best fit for your individual financial situation.

How many years’ experience does the attorney have practicing bankruptcy specifically?
Some attorneys practice in different areas of law and pick up bankruptcy as a secondary area. This can be an advantage, especially if you are using bankruptcy as a tool to help another legal situation, but beware attorneys who lack substantial experience or assistance to determine the best chapter of bankruptcy for you. A bankruptcy attorney with experience will be able to help you take full advantage of the bankruptcy laws to get the maximum benefit and help you get your fresh financial start!