When Chapter 13 bankruptcy can be more advantageous than Chapter 7
If you're a hard-working resident of North Carolina who has fallen behind on your bills and just can't seem to get caught up, Chapter 13 bankruptcy may be just the ticket. When you owe back mortgage and car payments, your lenders may not be willing to give you time to get caught up, but with a Chapter 13 plan, they have to. Based on your income, your attorney will develop a three to five year repayment plan that will allow you to get caught up on these back balances. This can be very beneficial to those looking for a way to get caught up on their bills.
Check out these five big benefits of Chapter 13 bankruptcy for those behind on their bills:
#1 Avoid repossession and make your car loan easier to pay
One of the most advantageous features of a Chapter 13 compared to a Chapter 7 is dealing with car loans that are past due. As long as you took your vehicle loan out at least two and a half years prior to filing bankruptcy, your attorney can request a cramdown. This benefits you in two ways. First, you can get your loan value reduced to the fair market value of your vehicle. This is usually hundreds to thousands of dollars less than your balance owed.
Second is that your interest can be reduced down to the prime rate plus a risk factor. Prime is currently 3.25%, so you can get a huge break. This will reduce your loan payments for the life of your loan, although you will have to catch up your back balances via your repayment plan.
#2 Protect your home from foreclosure and clear back balances
If you are also past due on your mortgage payments and are being threatened with foreclosure, a Chapter 13 can help you greatly. If you have a second mortgage and your loan value is more than your house is worth, this unsupported debt can be discharged. However, if you're upside down on your loan, you may not want to keep a home that's not an asset of value.
If you do have equity in your home, trying to hang onto it can be a good decision as long as you can afford your payments in the long run. Chapter 13 will allow you to pick back up making your current monthly mortgage payments and have three to five years to pay off your back balance. This is much more manageable that having to produce a lump sum to stay in your home.
#3 Get a payment plan for back income taxes owed
Sometimes income taxes can be forgiven in bankruptcy, but not always. In cases where it's not possible for them to be discharged in a Chapter 7 bankruptcy, a Chapter 13 will offer you more flexibility to deal with the Internal Revenue Service (which is not known for being patient or letting you haggle over what you owe).
Just as with other debts like your mortgage payments and student loans, your back tax balances can be paid out over the life of your Chapter 13 repayment plan. This can prevent you from being pursued by the IRS for a lien or garnishment of your wages, which can cause even more financial problems than you're already dealing with.
#4 Keep cosigners from being pursued for debts you're struggling to pay
If any of your debts are cosigned – typical with student loans and vehicle loans in particular – filing Chapter 7 bankruptcy when you're behind on your debts will get only you out of the liability. When a cosigned debt is discharged in bankruptcy, the lender is legally prevented from pursuing the one borrower, but not the other. This can make life hard on your cosigner.
Student loans are hard to discharge, but if you're not paying, lenders will turn to your cosigner. And with your auto or other loan, for any discharged balance, the lender will pursue your cosigner, which is usually a family member. If you leave someone else holding the bag for your debts, it can quickly ruin relationships and make your life worse.
#5 Keep non-exempt property from being taken to pay debts
For those that are behind on their debts, filing Chapter 7 subjects your assets to scrutiny. While North Carolina does offer very reasonable exemptions that allow you to protect equity in your home, vehicles and other assets, if you have more items of value than our state's bankruptcy law will allow you to protect, opting for Chapter 13 instead of 7 will better protect your belongings.
Chapter 13 bankruptcy is known as a wage earner plan because it is intended for those that are making enough to pay their current obligations as well as an additional amount to chip away at back balances. By contrast, Chapter 7 is for those that cannot afford to pay their current obligations and need to have debts discharged in order to regain their financial footing.
To find out more about the benefits of Chapter 13 and how we can help you get a financial fresh start, contact the North Carolina bankruptcy experts at the law offices of John T Orcutt today for a free consultation.