Chapter 7 and 13 bankruptcy

When you become delinquent on a mortgage due to a temporary life event, you could eventually catch up if only the creditor would work with you. Unfortunately, lenders often will refuse to work with you when you are delinquent and insist that the full outstanding amount be paid. Chapter 13 essentially forces the lender to cooperate. Chapter 13 Bankruptcy enables you to resume making the normal mortgage payment and satisfy the delinquency over the course of your 36-60 month Chapter 13 Plan. Stretching the delinquent payments out over a lengthy period will often make the payments manageable. As an example, if your normal mortgage payment is $800.00 per month and you are six (6) months delinquent, a Chapter 13 Bankruptcy would allow you to resume the $800.00 payments within 30 days and pay approximately an additional ($133.33) toward the delinquency assuming a 36 month plan or approximately ($80) toward the delinquency assuming a 60 month plan. In some cases, even the normal mortgage payment is beyond your ability to pay and/or the delinquency has grown so large that it can not reasonably be paid within 36-60 months. Under these circumstances, a loan modification should be considered in the Chapter 13 case in order to reduce the monthly payment to a comfortable level and make arrangements to restructure the delinquent portion of the mortgage with new terms.

During the rapid increase in real estate values that occurred a few years ago, many homeowners were aggressively solicited to originate second mortgages to access their home’s equity. A significant number of those who originated second mortgages now find themselves “underwater”, in many cases, with a home valued at even less than the remaining balance on their first mortgage. Chapter 13 Bankruptcy can be a particularly powerful tool for an individual in this position. If your home’s value is so low that not even one dollar of its value provides security for your second mortgage, it can be removed (referred to as “stripped”) with a Chapter 13 Bankruptcy. For instance, if your home has a current value of $100,000, subject to a first mortgage of $125,000 and a second mortgage of $25,000. you would be able of strip off the second mortgage entirely.

A vehicle purchased more than 910 days before the date of a bankruptcy filing and used personally may have its lien reduced to the vehicles fair market value. The vehicles fair market value is classified as the secured portion of the loan and any remaining amount owed is classified as the unsecured portion. The secured portion will be paid over the course of the Chapter 13 Plan (36-60 months) at an interest rate ranging between 1-2 % above the prime rate, which, at the present time, would result in a new interest rate of about 5%. The unsecured portion will receive the percentage being paid to other unsecured creditors under the Plan. For instance, assume that you purchased a vehicle in 2009 which has a current balance owed of $12,500 at 10% interest with a fair market value of $7,000 and your Chapter 13 Plan proposes to pay 10% to unsecured creditors with a plan length of 60 months. The result in Chapter 13 Bankruptcy would be as follows: The debt would be reduced to $7,000 paid at 5% and the remaining $5.500.00 would be repaid at 10% ($550.00) Both the secured and unsecured portion of the loan would be paid during the 60 month Chapter 13 Plan period. The difference between these two figures, $4950.00 ($5,500.00 – $550.00) would simply be eliminated.