Chapter 13 can help you save your home
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There are different forms of debt relief and not every type is a good fit for every circumstance. If you have been threatened with foreclosure or are concerned about the fate of your home, a Chapter 7 bankruptcy may offer you more appropriate relief than a Chapter 13. The primary benefit of a Chapter 7 is that it gives you a completely clean slate, but it may not be the best solution depending on what's going on with your mortgage. Here are some things to consider.
#1 Only Chapter 13 allows you to catch up on your mortgage
If you are behind on your mortgage payments, Chapter 7 won't reduce that debt or give you any breathing room to catch up. In contrast, a Chapter 13 is a debt reorganization plan that will give you the chance to get caught up on mortgage payments. The past due amount can be paid back over the length of your repayment plan (usually three to five years), which sees you paying a regular payment each month, plus a portion of the past due balance. If your lender won't work with you to negotiate this outside of bankruptcy, a Chapter 13 can force them to give you the time to catch up.
#2 Only Chapter 13 can allow you to strip away liens
If you have a second mortgage or home equity line of credit (HELOC) and you don't have enough value in your home to cover this debt on top of your mortgage, Chapter 13 can help strip away this unsecured debt. For instance, if your home is worth $150,000 and your mortgage is $140,000, you have $10,000 in equity. If you have a second mortgage for $30,000, $20,000 of the debt would be classified as unsecured and could be stripped away (i.e. gotten rid of) in a Chapter 13. If your home is worth less than your mortgage (i.e. you're upside down), you may be able to shed 100% of this additional debt.
#3 Only Chapter 13 is available because you can't pass the means test
Not everyone qualifies for a Chapter 7, so a Chapter 13 may be the only bankruptcy measure open to you. To be eligible for a Chapter 7, you have to pass the bankruptcy means test, which shows that you can't afford to pay your bills. However, if you're behind on your mortgage, this won't be factored into the means test. It simply considers your income and your bills without regard to the impact of past due balances that could see you lose your home or car. This can make it seem like you can afford to pay your bills even if you really can't. This can make a Chapter 13 your best and only bankruptcy option.
#4 Only Chapter 13 will protect your co-signers
If you have co-signed debt such as a mortgage, credit cards, car loans or any other debt, both you and your co-debtor are liable. If one of you files a Chapter 7 bankruptcy and has the debt discharged, it won't magically go away for your co-debtor too. The creditor will have to leave you alone, but will then pursue your co-signer for the debt. If the co-signer isn't a spouse, even filing a joint Chapter 7 won't help you both. But by filing a Chapter 13, you buy time to pay the bills and it also puts a stop, for a time, to collection efforts. This can give both you and your co-signer(s) a much needed break.
In some cases, if you are behind on your mortgage, a Chapter 7 may be worth considering, or if you have bought more home than you can afford, or can't manage a Chapter 13 debt repayment plan. But for others, a Chapter 13 is just the thing to give you a chance to catch up on past due bills and regain your financial footing. To find out your best option to get the debt relief you need, contact the law offices of John T Orcutt now for a free consultation with the North Carolina bankruptcy and debt experts.