Is Chapter 13 Bankruptcy an Alternative to Repossession?
One of the most significant issues struggling borrowers face is the possibility of repossession. This occurs when borrowers cannot make their car or mortgage payments, and the loan becomes overdue. When this happens, lenders have the legal right to repossess the property with or without prior notice.
The loss of assets due to repossession can make life difficult for those affected. They may have to forfeit the money spent on previous payments. Repossession can also adversely affect a borrower’s credit score and future borrowing opportunities.
If you’re struggling with making payments on your car loan or home mortgage each month, or you’re already behind on your payments, and you fear imminent repossession, Chapter 13 bankruptcy is a viable alternative that allows you to repay your debts more conveniently without losing your assets.
If you’d like to explore this option, the information here offers some general guidelines to help you understand the bankruptcy process before you get started. You can contact an experienced bankruptcy attorney if you require personalized advice based on your unique situation.
How a Chapter 13 Bankruptcy Benefits You
The most common idea of bankruptcy is that the person filing must liquidate their assets to pay off their creditors and be left with nothing. This claim may hold true to some extent, especially regarding Chapter 7 bankruptcy. But Chapter 13 bankruptcy is different. Hence when faced with the choice of “Chapter 7 vs Chapter 13 bankruptcy“, many people would opt for Chapter 13.
Chapter 13 bankruptcy allows individuals to restructure and manage their debt in a convenient repayment plan that their income can support. The repayment plan typically lasts between three to five years, after which any remaining debt is discharged.
Besides the convenient payment method, Chapter 13 offers several other benefits, including the following:
Immediately you file your bankruptcy petition, there is an automatic stay against collection actions against you. In the context of outstanding car payments, it means that the lender cannot proceed with a vehicle repossession once you file. They’ll get their payment as scheduled under the approved repayment plan.
Your family or anyone who co-signed your loan is protected from your creditors. They do not have to share in the consequences of your default.
Improved Credit Score
Missed loan payments can adversely affect your credit score. But with Chapter 13 bankruptcy, you can get your score back up when you make consistent monthly payments.
If you have several mortgages on your home, Chapter 13 bankruptcy can help reduce your liability through lien stripping. If you’d like to learn more, you can contact a skilled bankruptcy attorney to explain how lien stripping works in Chapter 13 Bankruptcy.
Who Is Eligible for Chapter 13 Bankruptcy?
- You must have a regular income and enough disposable income left after deducting your living expenses.
- Your total secured and unsecured debt must be less than $2,750,000 at the time of filing.
- You have not filed a previous bankruptcy petition that was dismissed within 180 days of filing the current petition
- You must undergo credit counseling at least 180 days before filing your petition.
There may be other conditions to meet before filing your bankruptcy petition. You can consult a skilled bankruptcy attorney who understands the applicable bankruptcy laws to help determine your eligibility.
Chapter 13 Bankruptcy: The Filing Process
The process for Chapter 13 bankruptcy begins with a petition filed in the bankruptcy court that covers the petitioner’s location. The petition is usually accompanied by several documents, including the following:
- Schedule of assets and liabilities
- Schedule of current income and expenditures
- Schedule of executory contracts and unexpired leases
- Statement of financial affairs and other financial documents
Before filing, you’ll need to pay the court a $235 filing fee and a miscellaneous administrative fee of $75.
The Debt Repayment Plan
Within 21-50 days after filing the petition, you will need to meet with the creditors and the bankruptcy trustee assigned to your case. This is where you will discuss the entire situation and find a viable alternative to an immediate lump sum payment of the outstanding loan balance.
The plan should provide for regular monthly payments to the bankruptcy trustee. The trustee will, in turn, distribute the funds to creditors according to the plan’s terms and the nature of each creditor’s claims as follows:
- Priority claims, like taxes and the costs of bankruptcy proceedings, must be paid in full.
- Secured claims must pay at least the value of the collateral.
- Unsecured claims, that is, debts without collateral, need not be paid in full. The outstanding loan balance for unsecured debts is discharged when the bankruptcy ends.
The Confirmation Hearing
After the meeting, all the parties will appear before the bankruptcy court for a hearing on the repayment plan. If the court confirms the plan, you can begin to make the scheduled payments to the Chapter 13 trustee until the repayment period ends.
How Can a Bankruptcy Attorney Help?
Bankruptcy attorneys are invaluable when you’re struggling with loan payments and imminent home or car repossession. They can assess your situation professionally and determine if you’re eligible for Chapter 13 bankruptcy or if other strategies, such as debt settlement or mortgage modification, would be more beneficial.
If you decide that bankruptcy is appropriate for you after due legal consultation, your attorney can ensure that nothing goes wrong with the process. They can organize and file bankruptcy court papers and represent you in court and creditor meetings to ensure your interests are always protected.
They can also guide you through the process of creating a suitable repayment plan that would be acceptable to the court. This way, you can avoid repossession, catch up on missed payments without stress, and pay off your debt over time.
Let Us Help at Cherney Law Firm
Filing bankruptcy is a big decision that must be carefully considered. If you have further questions about avoiding repossession or your eligibility for Chapter 13 and Chapter 7 bankruptcy, we can help at Cherney Law Firm. With our knowledge and extensive experience with bankruptcy law and proceedings, we can answer your queries and help you determine the most beneficial course of action.
Contact us today. Let us help you as you work to get out of debt and secure your assets.