The bankruptcy laws in the United States allow honest debtors to obtain relief from their creditors and get a fresh start. But sometimes, wiping the slate clear isn’t that simple; that’s where the power of a Chapter 13 bankruptcy can be useful.
A Chapter 13 Bankruptcy not only allows for the discharge of most unsecured debt, it also allows debtors t keep property they might otherwise lose. The combination of keeping property and reducing debt can be a powerful tool for the unfortunate consumer that has become overextended. In general, even in bankruptcy, you have to pay for property if you want to keep it. However, Chapter 13 can alter the way debts are repaid and provide a way to keep property that would otherwise be repossessed.
One way Chapter 13 can help make keeping property more affordable is by changing the repayment terms. Loans can be extended to be paid over a 5 year period in Chapter 13. Also, Chapter 13 can reduce the interest rate that is being charged for certain items. And, finally, there are circumstances where collateral can be retained by paying the value of the property instead of what is contractually owed. If you are upside-down on a car loan, this can be especially helpful.
Chapter 13 is also helpful when it comes to retaining a home. Missed mortgage payments can be a source of stress and fear, but Chapter 13 is designed to allow the debtor to make up those payments of a period of 5 years. This is true even if foreclosure proceedings have begun. The repayment process of a Chapter 13, along with the cessation of revolving debt payments often makes keeping a home a reality. Chapter 13 can also be used to avoid junior mortgages under very strict circumstances. This tool, when available, can be extremely useful in maintaining a home might otherwise be too expensive to keep.
Chapter 13 can also be used to address tax debt. Often, taxes have to be paid, and when they do, Chapter can allow for those taxes to be paid over 5 years. This is often better than a tax lien or garnishment. Also, there are circumstances where tax debt can be discharged. That can be a huge bolster to a consumers ability to pay other debt.
A Chapter 13 Bankruptcy can be a useful and powerful financial tool when applied properly. It can allow a debtor to keep and protect property while reducing payments and eliminating debt.
By Addam Fera, W M Law Attorney