Suppose you fell behind on your mortgage or car payment for whatever reason. More than a few months have passed since you were able to make a payment.
After ninety days of nonpayment, your mortgage or auto/truck finance company will typically cease accepting payments from you. Even if you are now able to recommence loan repayment and send them a check, they will return it to you uncashed. The loan has now been """"accelerated"""" The entire loan is now due.
Chapter 7 bankruptcy would discharge all personal liability on the debt, but you would be required to return the vehicle.
However, suppose you desired to keep your vehicle. What is the response? Chapter 13 would be filed instead of chapter 7. When you do so, you inform the court, the trustee, and your creditors, including the finance company, that you will retain possession of your automobile.
You would draft and propose a chapter 13 plan with the assistance of your bankruptcy attorney. In your plan, you would specify the monthly amount you could afford to pay the trustee, typically for 36 or 60 months.
Obviously, you would have to demonstrate that you can afford to pay the fiduciary and resume making your monthly car payments. If you are able to do so, you will be able to save your vehicle.
The same applies to mortgage arrears. Filing for chapter 13 bankruptcy is advantageous and a common decision.
Chapter 13 allows you to modify your creditors' rights.
So long as a debt is not secured solely by your primary domicile, you have the right to modify the rights of secured creditors under chapter 13.
Let's revisit the vehicle example. That is the most common occurrence. Suppose you owed $15,000 on a 2008 car/truck/motorcycle you purchased.
Now calculate the retail value of your vehicle. Retail value is the amount you would have to pay a dealer today to purchase the same automobile - same year, make, model, etc. www.kbb.com is one of the finest websites for this purpose. You discover that it would only cost $9,000 to purchase your car today.
In this case, you must designate in your repayment plan that you will repay $9,000 (the current retail value) instead of $15,000, and the finance company must accept the lower amount. Excellent, right?
That is not your only option. In addition, you can reduce the interest rate. That is correct. You can modify your interest rate to 1 or 2 percentage points above the prime rate at the time you file your case. That can be a substantial savings.
There is one exception to the modification of creditor rights for vehicle loans. You must have possessed the vehicle for a minimum of 910 days, or two and a half years. If not, you cannot """"cram down"""" the principal balance, but you can still reduce your interest rate.
Chapter 13 discharges second mortgages and home equity loans.
Here's the situation: If you own a home where the first mortgage is """"upside down"""" (i.e., you owe more than the home is worth), you can avoid the lien on any other mortgage on the property.
Since the 2008 credit crisis, millions of householders have been in the same situation. The value of their home is less than what they owe on their first mortgage. Filing for chapter 13 bankruptcy enables them to avoid the attachment on the second and home equity loans, thereby transforming the loan into a credit card debt - a debt that is entirely unsecured. Awesome!""
" - https://www.affordablecebu.com/
