At the law firm of Buckrop & VanDeVelde, our Quad Cities Chapter 13 attorneys have helped numerous individuals and businesses get a fresh start by exercising their legal rights under the U.S. Bankruptcy Code. If you are interested in filing bankruptcy, please read the information below, which will provide you with detailed information about the benefits of a Chapter 13 bankruptcy and what you can expect to encounter along the way.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is the second most common type of bankruptcy and is often referred to as a reorganization. In a Chapter 13 bankruptcy, the debtor proposes a plan to repay creditors some or all of the debt he or she owes over a period of 36-60 months. Generally, at the end of the bankruptcy, all debts included within the bankruptcy are discharged whether or not a portion or all of the debt was paid.
A Chapter 13 filing is a powerful tool for debtors and gives them many options that are not available in a
Chapter 7 bankruptcy. For example, if you are behind on your mortgage payments and facing foreclosure you can reinstate your mortgage by paying what you are behind over a period of up to 60 months. If you are behind on car payments and facing repossession, or in some cases even if your car has been repossessed, you can file a Chapter 13 plan, which allows you to get your vehicle back and pay the vehicle off over the term of your Chapter 13 bankruptcy.
If you owe more for your vehicle than it is worth, you may be able to pay off the vehicle in a Chapter 13 by paying the creditor the value of the vehicle over the life of your bankruptcy. In many cases, the interest you had been paying on the secured debt can be substantially reduced, allowing you to pay off the secured debt more quickly. Chapter 13 debtors often discover their bankruptcy payment is lower than what they had been paying to their creditors on a monthly basis. This is because a Chapter 13 payment is based on a bankruptcy petitioner’s ability to pay and generally not on the amount of debt he or she owes.
I Can’t Afford My Second Mortgage. Is There Anything I Can Do?
Believe it or not, you may be able to get rid of your second mortgage through the filing of a Chapter 13 bankruptcy and keep your house! The U.S. Bankruptcy Code, as interpreted by the courts, allows many individuals and businesses to strip off, or discharge, second mortgages in a Chapter 13 bankruptcy if the property is worth less than the amount owed on the first mortgage as of the date of filing their bankruptcy petition.
You may ask, “How could my home be worth less than my first mortgage?” The answer is that over the years, the value of homes decreased dramatically. Many, hoping to use the equity in their homes to make improvements, obtain a better interest rate or pay off other debts, refinanced their homes at a higher amount than when they first purchased their homes. Many also borrowed on home equity lines of credit and second mortgages.
Over the past several years, the average value of homes in many parts of the United States has fallen drastically. As a result, many homes are now only worth a fraction of what they once were. In situations such as these, you often may find that the true value of your home is worth less than what you owe on your first mortgage. In this situation, a Chapter 13 bankruptcy can free you from the second mortgage by stripping off the mortgage through your bankruptcy.
Why Would I File a Chapter 13 Bankruptcy?
There are many reasons why an individual would choose to file a Chapter 13 bankruptcy. Some choose to file by choice and others because they have no alternative. Often, people will file a Chapter 13 bankruptcy to reinstate their mortgage and stop a foreclosure. Generally, you can reinstate your home up until the point it is sold.
Another reason to file a Chapter 13 bankruptcy is that it will allow you to keep your vehicles in the face of a repossession. Many times you will find that you can pay off those same vehicles for less than what you were paying on a monthly basis. Some choose to file a Chapter 13 bankruptcy to repay all of their creditors the amount they owed, even though they would not be required to under the Code.
In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Credit Protection Act, which implemented what is referred to as the “means test.” The purpose of the means test is to prevent individuals who can afford to repay a portion of their debts from filing a Chapter 7 bankruptcy and discharging their debts without having to pay back even a portion of what they owe.
If an individual seeking bankruptcy protection does not pass the means test, he or she will not qualify for a Chapter 7 bankruptcy and therefore his or her only option is to file a Chapter 13 bankruptcy. Another reason that an individual seeking bankruptcy protection would file a Chapter 13 bankruptcy instead of a Chapter 7 is that a Chapter 7 bankruptcy can be filed only once every eight years. Therefore, anyone who has filed a Chapter 7 bankruptcy within that time frame would not be eligible to file another one.
I Cannot Afford to Make My Chapter 13 Bankruptcy Payment
If you are not able to make your Chapter 13 payment, then you should contact your bankruptcy lawyer. If you are earning less money or have increased monthly expenses, it may be possible to lower your monthly payments. If you lost income because you were laid off, had an extended illness, were otherwise unable to work, your bankruptcy lawyer may be able to stop your Chapter 13 bankruptcy payment for up to three months, or you may be eligible to convert to a Chapter 7 bankruptcy.
It is always a good idea to contact your bankruptcy attorney before you fall behind on Chapter 13 payments. Your bankruptcy attorney can advise you on the best way to proceed under your circumstances. As with a Chapter 7 bankruptcy, a Chapter 13 bankruptcy also gives individuals and businesses filing for bankruptcy the protection of the
automatic stay and the discharge injunction.
Contact Our Moline, Illinois, Debt Reorganization Attorneys
Our office is located in The Law Centre in downtown Rock Island, Illinois, just a short distance from both Iowa and Illinois federal courthouses. Our lawyers and professional staff proudly serve most clients throughout Western Illinois and Eastern Iowa. Contact us to arrange a consultation with an experienced Chapter 13 attorney today.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.