Chapter 13 is the power chapter for consumers in the bankruptcy code. While chapter 7 will get you quick relief for many debt problems, chapter 13 can fix things chapter 7 will never touch. These are some of the things that chapter 13 can do:
- allow you to catch up your mortgage if it is behind, or strip off an underwater second or greater mortgage;
- pay off your car for what it is worth instead of what you owe;
- reduce interest rate on cars and other secured consumer debts to around 4%;
- stop IRS collection enforcement with a court ordered payment plan that pays the actual tax and can pay interest and penalties at pennies on the dollar;
- catch up back child support and alimony and pay other non support divorce obligations for a percentage of what is due. Chapter 7 no longer discharges obligations that arise from a divorce order or separation agreement. This can.
Catch Up Your Mortgage
Are you are behind on your mortgage? Do you want to keep your house try to work out a way to bring the mortgage current? Try offering the bank a deal to spread the payments on your mortgage loan arrearage over three to five years. The answer will be a resounding NO, if they answer at all. File a chapter 13. That is exactly the payment arrangement this type of bankruptcy offers, and with no continuing interest and late fees for the amount you are behind. You will have to be able to make your current payments as well. It will put the brakes on a foreclosure lawsuit to give you the chance to get your act together. If you have a second mortgage, or home equity line of credit that is completely underwater, then you can strip it and pay it as an unsecured debt in you plan.
Cram down your car loan
If you have had your car loan for more than 910 days, you can propose a chapter 13 repayment plan to pay the value of the car in the plan, not the full balance due. Even if the loan is less than 910 days old you can still reduce the interest on the loan to around 4%. That fact alone will pay off your car much faster.
Bring the IRS into line
Dealing with tax collections is its own special nightmare. The government wants its money. You owe it. If you deal with them on your own, they will want it all, tax, penalty, and interest. File chapter 13. If it has been less than 3 years since the return was due, filed, and the tax assessed, then the tax portion can be spread over 3 to 5 years. The penalty and interest portion is always unsecured and will get a percentage of what is due. If more than 3 years have passed then the whole amount is unsecured.
Win the child support war
A big change to the bankruptcy law in 2005 was that non-support obligations in divorce can only be discharged in chapter 13. Owe the ex cash for the home you no longer own? Is she being chased for credit card bills you were ordered to pay, but never could? How about that hold harmless clause? Chapter 13 will now discharge your obligation to the ex spouse. It is the only way to get him or her off your back. It will stop contempt actions, even if you have already been sentenced and about to begin a jail term for not paying. Domestic Spousal obligations, DSO for short, can not be discharged. DSO is bankruptcy speak for child support and spousal support or alimony. Arrearages can be paid in a chapter 13 repayment plan.
People who come to me for a bankruptcy consultation want a chapter 7. They want the quick solution. The quick solution, although tempting might not give you the best result.