Posts Tagged ‘Benefit Higher Income Debtors’
If you are having problems making your second mortgage payment or home equity line of credit you may want to meet with one of our lawyers to see if we can get rid of that secondary mortgage. When you file a chapter 13 bankruptcy a bankruptcy Judge may get rid of a second mortgage or home equity loan if that mortgage is wholly unsecured. Those secondary mortgages are wholly unsecured if your home is valued at an amount equal to or less than the amount you owe on your first mortgage. As an example. You have a home worth $150,000.00 with a 1st mortgage of $155,000.00 and a 2nd mortgage of $30,000.00. In this case the 2nd mortgage company would get nothing in the event your home sold for $150,000.00 or less. For that reason a Chapter 13 judge would order the 2nd mortgage void since it is entirely or wholly unsecured.
This issue can sometimes be very confusing. For that reason we always suggest you set up a free consultation with one of our lawyers a Miller & Miller. There is never a charge for an initial consultation and we are happy to meet with you to discuss all of your options.
James Miller
jmiller@millermillerlaw.com
414-277-7742
Karen Blumenthal recently published an article in the Wall Street Journal entitled, New Ways Bankers are Spying on You, which discusses how in these difficult economic times, banks are doing much more than simply looking at your credit score when deciding whether or not you are worth lending to.
This brings to mind the client who comes to my office and tells me that even though they are hopelessly in debt, they are worried about filing a bankruptcy because their credit score is still high. I always remind these clients that your credit score is supposed to be one of many barometers of your financial health, not an absolute indication of financial health. Unfortunately, many people are encouraged to misuse credit based upon the erroneous assumption that all is well because their credit score is still above 700, and they slowly fall into financial hardship.
The definition of financial health includes living within a budget, controlling debt, using credit responsibly, working towards short and long-term financial goals, and saving. It is challenging to manage any of these things when you are struggling to make minimum payments on your monthly obligations.
The federal bankruptcy laws provide a solution for those who are overwhelmed with debt. Bankruptcy can restructure or eliminate certain debts while protecting assets like your car, your home, and your 401(k). If you have more debt than you can handle, and feel like you aren’t getting ahead, don’t be fooled by a high credit score. It might be time to consult with one of the experienced attorneys at Miller and Miller, who can advise you of your options on how to get back on the road to financial health.
The Basics of Chapter 13 Bankruptcy
Chapter 13 is very effective at helping filers get a fresh financial start while being able to keep valuable assets like homes and cars Federal bankruptcy laws exist to give debtors an escape from overwhelming debt when they find themselves in an unworkable financial situation. The protections offered by a bankruptcy filing have only rarely been more important than they are in our country’s current economic situation. Stock market woes, the burst housing bubble and chronically high unemployment rates have left record numbers of Americans in financial trouble and looking for more information about debt relief options like credit counseling, loan modification, debt consolidation and bankruptcy.
Types of Bankruptcy
There are several different types of bankruptcy filings that a debtor might consider. Eligibility for these programs are based upon an analysis of the debtor’s unique financial condition and whether the filer is an individual, a business entity, a farming enterprise, a fishery, a railroad or a municipality.
- Businesses — depending upon the industry — might be able to file under Chapters 11, 12 or 15 of the U.S. Bankruptcy Code.
- Municipalities like cities, towns, villages and school districts can seek the protections offered by Chapter 9.
- Individual debtors, however, have two choices: Chapter 7 or Chapter 13.
What Is Chapter 7?
Consumer bankruptcy is the blanket legal term for a bankruptcy filed by a single individual (or by a married couple) instead of a by a business or other entity. Consumer bankruptcies are covered by Chapters 7 and 13 of the Bankruptcy Code.
Chapter 7 is better known as “liquidation bankruptcy.” It involves the literal liquidation (selling) of the debtor’s assets in order to raise money that will be used to pay debts. Secured creditors — those whose debts involve a tangible collateral like a house, car or appliance — are given priority, so they are paid first. Any debts not payable through the proceeds of a liquidation are discharged at the end of the proceeding, except for certain debts (student loans, taxes, child support and alimony) that are non-dischargeable. Chapter 7 does include myriad exemptions that will protect various types of property from being liquidated, however, so filers do get to keep the majority of their essential assets.
Because it is more inclusive and involves the discharge of all or most debts, it is more difficult to qualify for Chapter 7 bankruptcy protection than it is for Chapter 13. Potential filers must undergo what is known as a “means test” to determine eligibility. Most people who do not qualify to file under Chapter 7 are able to bring a Chapter 13 filing instead.
What is Chapter 13?
Chapter 13 bankruptcy involves the reorganization / consolidation of all the filers debts into one amount that is repaid over a period of three to five years. People filing under Chapter 13 do not have to pass a means test, but they do have to prove to the bankruptcy court that they have an income with which to make regular payments on their debt. Some debts — the like student loans, taxes, child support and alimony mentioned above — cannot be included in the repayment plan and are not subject to discharge.
Chapter 13 is very effective at helping filers get a fresh financial start while being able to keep valuable assets like homes and cars without seeking exemptions. There is not the immediate discharge of debt like there is in Chapter 7 bankruptcy, but if the debtor fulfills the obligations of the repayment plan, remaining debt is discharged at the end of the agreed-upon time.
Why File a Chapter 13 Bankruptcy?
Most people choose Chapter 13 bankruptcy filings to protect themselves from foreclosure, repossession or wage garnishment. Filing for bankruptcy protection activates something called an “automatic stay.” That means that while the filing is pending, creditors cannot pursue lawsuits, garnishments, repossessions or foreclosures. In fact, they cannot even contact the debtor while the automatic stay is in place — all harassing phone calls and threatening letters must stop once the filing process has begun. Past due amounts on mortgage or car payments can be rolled into the consolidated debt and paid back over the life of the repayment plan, so as long as the debtor remains current.
In addition to the protections offered by the automatic stay, Chapter 13 is also a relatively inexpensive way to get a fresh financial start. Yes, filers have to commit to making payments on their debts for a period of time, and the bankruptcy will have a long-lasting impact on their credit rating, but they can also start to rebuild credit not long after filing. Furthermore, the negative impact of a bankruptcy filing is still less significant than that resulting from a foreclosure, repossession or garnishment.
If you want to learn more about filing for Chapter 13 consumer bankruptcy, contact an experienced bankruptcy attorney in your area.
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I often have clients who are concerned that if they don’t
“qualify” for a Chapter 7, they don’t want to do a
bankruptcy at all. Perhaps they don’t qualify due to
higher income, or due to a previous Chapter 7 filing in the
last eight years. These clients have a vague idea of what a
Chapter 13 bankruptcy is – a repayment plan – and don’t
feel it’s “worth” doing a bankruptcy if they have to
pay their creditors. Isn’t that why they are seeing a
lawyer in the first place, because they cannot afford to pay
the creditors? Chapter 13 bankruptcies can be difficult, so
I understand the hesitation. But before making a decision a
person should know more about what a Chapter 13 Bankruptcy
actually is, and also how to weigh that option against his
current situation.