Attorney Jon Ginter
Benefits of Reorganizing/Adjusting Debt with a Chapter 13 Bankruptcy
There are two types of bankruptcy that apply to individuals -- Chapter 7 bankruptcy and Chapter 13 bankruptcy. Chapter 7 wipes out most of your debts in 120 days, while Chapter 13 is a 3- to 5-year payment plan where you pay back part of your debt and the rest is eliminated. Chapter 7 is a good fit for many individuals, but Chapter 13 provides unique benefits that make it a better option in a lot of cases. Here are some of those benefits:
1. Lowering car payments. If your car payment is hard to manage, this can often be remedied by filing a Chapter 13 plan. This plan can allow you a new five-year period to pay off the balance owed. It also caps the interest rate at approximately 5%. In addition, for vehicles that were purchased over 910 days before the filing of your case, the amount you are required to repay on the vehicle is lowered to its current fair market value.
2. Homeowners. If your monthly mortgage payment is hard to manage, and you are currently behind on your payments, Chapter 13 provides the opportunity to catch up on these payments over a five-year period. This is a constant whether you are pre-foreclosure, or already in the foreclosure process. The filing of your case stops everything and is your vehicle to get current and save your residence. The filing of your case stops everything and is your vehicle to get current and save your residence. Not only can the plan bring you current on your first mortgage, but in some cases, any junior mortgages/home equity lines of credit can be stripped off your home, and treated the same way as your credit cards, medical bills, and other unsecured debts. Back property taxes and property tax certificates can also be rolled into your plan and paid off over the five-year period.
3. Student loans. Many people currently in the workforce struggle with student loans, and while investing in yourself at a young age is usually the right decision, the lasting effects of large student loan payments are an anchor that drags many young professionals down. Upon the filing of a Chapter 13 plan, you are not collectable in relation to your student loans. In essence, you receive a five-year break from them, while you are establishing yourself in your career. The student loans cannot be discharged (except in extreme circumstances) under current federal law; however, during the five-year plan, you make no payments on them. The creditors simply receive the same percentage that the rest of your creditors are being paid, which is often pennies on the dollar. This payment is made by the trustee in your case.
4. Tax issues. Taxes owed are given priority status in the Chapter 13 plan, but you are given the same five years to pay them off. By way of example, if one owes $12,000.00 to the IRS, and the debt was all accrued in the last two years, then this must be paid in full in the plan, but this can be accomplished at a monthly rate of $200.00 to this creditor, all handled by the trustee. There are also certain taxes that are not treated as a priority in this way. We can discuss this at your initial consultation.
5. Landlords. For those who own multiple parcels of real estate, Chapter 13 can be extremely beneficial. First mortgages can be crammed down (similar to the car example listed above) to fair market value. This value is usually obtained by way of County Auditor value or a certified appraisal. If you need a certified appraisal, we can give you a referral to an excellent appraiser with a proven track record and very reasonable fees.