Benefits of Filing Chapter 13 Bankruptcy

There are two types of bankruptcies consumers most often file.  The most common is a Chapter 7 bankruptcy but many people find Chapter 13 to be more beneficial.  While it’s true that some people must file a Chapter 13 because they do not qualify for a Chapter 7, others file Chapter 13 because of the many benefits it has over a Chapter 7.  Below are some reasons to consider filing a Chapter 13 bankruptcy.

•  Save a Home from Foreclosure – Chapter 13 allows mortgage arrears to be paid over the life of the Chapter 13 plan (36-60 months).  The bankruptcy will stop the foreclosure and allow the homeowner time to get caught up on payments to save the home.
•  Avoid or Strip a Second Mortgage – If a homeowner owes more on their first mortgage than their home is currently worth they may be able to eliminate or strip the second mortgage lien from a property’s title in a Chapter 13 bankruptcy. 
• Cram Down Interest Rates – In most cases interest rates can be lowered for secured debt in a Chapter 13.  This includes secured debt for cars and even household goods. 
• Cram Down Car Value – If more is owed on the vehicle than it is worth the amount paid to the car creditor in a Chapter 13 can be crammed down to the fair market value. 
•  Preserve Your Chapter 7 Option – Chapter 7 can only be filed once every eight years.  While a person may need bankruptcy protection now to stop wage garnishment or creditor harassment they may also be anticipating more debt.  For example if a person has a medical condition and know they will be incurring medical bills due to cancer or another illness they may need the option of including the new debt in the future.  A Chapter 13 can be converted to a Chapter 7 in the future and debt incurred after the original Chapter 13 filing can be included in the converted Chapter 7 case.   To convert a person still must qualify for a Chapter 7 based on income and other factors that a bankruptcy attorney can explain in detail. 
• Length of Time on Credit Report – A Chapter 13 bankruptcy remains on a person’s credit report for seven years whereas a Chapter 7 will show up for 10 years.
• More Affordable – In some cases a Chapter 13 plan payment may be less than what a person is paying for their car, and the car would be included in the Chapter 13 plan payment.  By cramming down interest rates and loan values a Chapter 13 could save money in the long run compared to keeping the car in a Chapter 7 bankruptcy.

There are many factors to consider when deciding which bankruptcy case may be right for you.  Chapter 7 and Chapter 13 are both great options for solving financial problems.  However, before you choose which chapter to file, make sure you have all the facts and speak to an experienced bankruptcy attorney.    Most offer free initial consultations and I would recommend speaking to a local attorney in your area about what benefits you may expect from filing a Chapter 13 bankruptcy.

If you have questions regarding bankruptcy in Indiana please contact Jackson & Oglesby Law at (877) 489-0908 or visit us at www.IndyBankruptcyLaw.com. Jackson & Oglesby Law can assist you with all aspects of your bankruptcy case. If you have questions regarding Chapter 7 bankruptcy, Chapter 13 bankruptcy, stopping foreclosure or wage garnishment, avoiding liens, stopping law suits, discharging debt, etc. we can help! Please call us today for your free phone consultation to determine which bankruptcy may be right for you.

Lien Stripping in Chapter 13 Bankruptcy

In Chapter 13 bankruptcy, liens such as mortgages, security interests and even voluntary liens can be stripped or reduced to the actual fair market value of the collateral.  This is often called lien stripping, lien avoidance, and cram downs.

Home Mortgage Liens

In today's economy many people have multiple mortgages on their property.  Those mortgages were lended when property values were high.  The downturn in the economy has caused home prices to plummet leaving some home owners owing substantially more on their home than it is worth. 

A home mortgage lien can be stripped in Chapter 13.  The second or third mortgage must be wholly unsecured.  Which means the home must be worth less than what is owed on the first mortgage.  To obtain the most accurate value of your home we recommend getting a Comparative Market Analysis (CMA).  Any realtor will be able to complete this and it should be done free of charge.  They will look at comparable homes in your area and base the value on recent sales. 

To successfully strip the lien a Chapter 13 must be filed.  The attorney will then file a Motion to Avoid the Lien of the mortgage company.  Once the court enters the order avoiding the lien the Debtor needs to record the order at their local recorders office.  The Chapter 13 must also be successfully completed.  If the case is dismissed without a discharge the lien will re-attach to the property.

Vehicle Liens

The most common form of lien stripping involves personal vehicles.  For instance, if the vehicle is worth $6,000 and the consumer owes $8,000 to the secured creditor the consumer can pay $6,000 plus interest in a Chapter 13.  Two thousand dollars is then stripped off the collateral (car).  This is commonly referred to as "cramming down" the loan.  The Chapter 13 plan must provide for the secured portion of the debt to be paid in full over the life of the plan.  The interest paid is generally lowered as well to approximately 4.25%.  The $2,000 that is now unsecured can be paid less than 10% along with other unsecured claims.

According to §506 of the bankruptcy code, vehicles purchased within 910 days of filing are not eligible to be crammed down.  This rule, unfortunately, eliminates many consumers.  However, if the vehicle was purchases more than 910 days (2.5 years) ago the vehicle will be eligible for lien stripping in a Chapter 13.  It may also be advantageous for some consumers to wait until the 910 have passed to file bankruptcy if they are significantly upside down on a vehicle they wish to keep.      

If you have questions regarding bankruptcy in Indiana please contact Jackson & Oglesby Law at (877) 489-0908 or visit us at www.IndyBankruptcyLaw.com. Jackson & Oglesby Law can assist you with all aspects of your bankruptcy case. If you have questions regarding Chapter 7 bankruptcy, Chapter 13 bankruptcy, stopping foreclosure or wage garnishment, avoiding liens, stopping law suits, ending creditor harassment, discharging debt, etc. we can help! Please call us today for your free consultation to determine which bankruptcy may be right for you.