What results can you expect from Chapter 13 bankruptcy?
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For consumers behind on secured debt such as their mortgage or auto loan, Greensboro Chapter 13 can help you catch up and get back on track. This type of bankruptcy puts you on a repayment plan that lasts three to five years, but more typically five years. During the plan, you make current monthly payments on your mortgage and auto loan plus your normal living expenses, but you don’t pay on unsecured debt like credit cards, medical bills, and some qualified older income tax balances. At the end of the plan, your secured debt is caught up, and the remainder of your unsecured debt is discharged. That’s the outline of how a Chapter 13 case works, but below is a dollars and cents example of what you can expect from Greensboro Chapter 13 bankruptcy.
Sample Chapter 13 Circumstances
Let’s first look at debts in this sample Chapter 13 case. Assume you have a mortgage, second mortgage, and property taxes owing on your home and you’re behind on all three. Let’s also assume you’re a couple of months behind on your car payment, owe some medical bills, have maxed out your credit cards and owe a balance on your income taxes from three years ago.
For secured debt, there should be a reason to catch up on past-due balances. If your home is in good shape and not in need of extensive repairs, so it’s a good deal to keep, that’s a primary consideration. The same goes for your car. If it’s a hunk of junk that’s about to die on you, but you owe more than it’s worth, that might not be worth salvaging. But let’s assume both home and auto are in good condition.
Let’s also assume that you fell behind on your bills because of a situation that has now been resolved. For instance, maybe you were out of work for six months to a year but are now gainfully employed and ready to catch up on your debt. If you want to save your assets and are behind on payments, Chapter 13 is the better route than Chapter 7 which isn’t set up to help you catch up on debt.
Benefits of Greensboro Chapter 13
The way that Chapter 13 should work is that the repayment plan is set up to catch up on past-due balances on secured debt (mortgage and auto) and pay a fair amount of unsecured debt based strictly on your ability to pay. If you also owe child support and alimony, these must be caught up in the plan and cannot be lessened or discharged. Most plans run five years.
However, some payments might be eligible for lowering using Chapter 13. For instance, if the second mortgage isn’t supported by equity, it can be “stripped” and moved from secured debt to unsecured. Let’s say your primary mortgage is $150,000 and your home is worth $155,000. You have a second mortgage with a $30,000 balance.
You have $5,000 equity in your home (home value $155k minus mortgage $155k = $5k equity). That means the second mortgage only has $5k of equity supporting it. In Chapter 13, that $30k second mortgage can be divided into two parts. $5k would be secured, and the other $25k would be unsecured. In that manner, your repayment plan would only target past-due amounts on the primary mortgage and just a small amount of the second mortgage.
Now let’s discuss your auto loan. For instance, if you bought the car three years ago and owed $10,000 on it but the auto is only worth $5k, your attorney can request a “cram down” which would lower your auto loan balance down to the $5k value of the vehicle. You would still have to catch up the past-due balance via your repayment plan, but future payments would be lowered using the cram down option. Also, if your interest rate is higher than the prime rate, that might also be lowered.
Greensboro Chapter 13 Repayment Results
At the end of the repayment plan, your mortgage would be current and your second mortgage would be current and greatly reduced. Your property taxes would be current as well. Your auto loan should be paid off and at a much smaller amount than the prior balance. The older income taxes, as well as the unsecured balance of the second mortgage, your credit cards, and medical bills, would see the remaining balances discharged at a great percentage.
In some cases, there is very little paid on unsecured even as low as 1% (or less) depending on your financial circumstances. Every Chapter 13 case is different but the result, if you complete your repayment plan, is that you are current on your secured debt, rid of much of your unsecured debt, and ready to move on with your life with a fresh financial start.
To find out more about the benefits of Chapter 13 bankruptcy, contact the Law Offices of John T. Orcutt. Call +1-919-646-2654 now for a free Greensboro bankruptcy consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.