Dealing with insurmountable debt can be an overwhelming experience, leading many individuals and businesses to consider bankruptcy. Among various forms of bankruptcy, Chapter 13, also known as a wage earner's plan, allows individuals with regular income to develop a plan to repay all or part of their debts over a period.
Here are some strategies under Chapter 13 bankruptcy that can help debtors regain financial control.
Understanding Chapter 13 Bankruptcy
Chapter 13 bankruptcy is designed for debtors with a regular income who can pay back at least a portion of their debts through a repayment plan. Under this type of bankruptcy, debtors propose a plan to repay their creditors over three to five years. The duration depends on the debtor's monthly income and whether it is below or above the state's median income.
Strategies Under Chapter 13 Bankruptcy
Here are several strategies that can be used when filing for Chapter 13 bankruptcy:
- Lien Stripping: One of the most powerful strategies under Chapter 13 bankruptcy is lien stripping, which allows homeowners to remove second and subsequent mortgages under certain conditions. If a homeowner's first mortgage exceeds the current value of the house, any subsequent mortgages become unsecured debt, which can potentially be stripped or eliminated through the bankruptcy process.
- Cramdown: A cramdown can be used in Chapter 13 bankruptcy to reduce the principal balance or interest rate of certain secured debts, such as car loans or mortgages on investment properties. The cramdown process allows the debtor to pay the lender the current value of the property or asset, rather than the total amount owed.
Restarting, Protecting, and Catching Up
Chapter 13 bankruptcy allows debtors to catch up on missed mortgage or car loan payments over time through the repayment plan. This can prevent foreclosure or repossession and allow debtors to keep their property.
- Restarting: Unsecured debts, such as credit card debt and medical bills, are typically paid last in a Chapter 13 plan. Depending on the debtor's income and the value of their assets, these debts may only be partially repaid, or in some cases, not repaid at all.
- Protecting: Chapter 13 bankruptcy includes a "co-debtor stay," which can protect co-signers from collection efforts while the bankruptcy case is ongoing. This can be a useful strategy if a debtor has loans that were co-signed by friends or family members.
Role of Bankruptcy Law Services
An experienced bankruptcy attorney plays a crucial role in effectively using these Chapter 13 strategies. They can help assess the debtor's financial situation, propose a feasible repayment plan, and navigate the complex bankruptcy process. By doing so, bankruptcy law services can help debtors take full advantage of the benefits provided by Chapter 13 bankruptcy, while also ensuring that all necessary legal procedures are followed.
For more information on bankruptcy services, contact a professional near you.Share