In theory, Chapter 7 of the Bankruptcy Code requires the liquidation of unprotected valuable assets to repay a portion of debts. The court would eliminate any remaining portion of your dischargeable debts.
In reality, the majority of Chapter 7 cases are classified as """"no-asset"""" cases. Contrary to popular belief, the filer's assets were typically protected by statute or of such negligible value that selling them would have cost more than they were actually worth. In such cases, the property was merely abandoned back to the filer, implying that the filer was permitted to retain ownership.
BAPCPA (the """"Bankruptcy exploitation Prevention and Consumer Protection Act of 2005"""" - pronounced """"bapseepa"""" by those in the know) was enacted to prevent alleged bankruptcy exploitation as a result of the lobbying efforts of creditors.
One of the objectives of the Bankruptcy Abuse Prevention and Consumer Protection Act was to steer many individuals away from Chapter 7 and into Chapter 13. In order to file for Chapter 13 bankruptcy, the debtor must propose a plan for at least partial repayment of unsecured debt, such as typical credit card debt. Additionally, arrears on secured debt must be paid in full within a maximum of five years. In the majority of Chapter 13 cases, at least a portion of dischargeable debts are eliminated.
Whether you would still be eligible to file under Chapter 7 under BAPCPA or be steered into Chapter 13 is dependent on your income, expenses, and actual month-end balance. This analysis is known as a means test.
Chapter 13: Exactly What The Doctor Prescribed?
However, if you have fallen behind on your mortgage payments and are attempting to save your property, Chapter 7 will not be of much assistance. Still awaiting the permanent loan modification to take effect? You may spend an eternity waiting for something that will never arrive. Your true knight in shining armor may be to petition for Chapter 13 bankruptcy protection.
Chapter 13 allows you to repay your bank (or auto financier) over a period of five years, assuming current payments are made on time. What about ongoing payments? Remember that you are not the only one affected by the downturn in the real estate market. The last thing your bank needs right now is another property in foreclosure.
What about a second mortgage or home equity line of credit? Under current law, if you are """"upside-down"""" on your home - that is, if the fair market value of your home is less than the amount you owe on your first mortgage - chapter 13 will enable you to eliminate secondary liens. They will be regarded as """"unsecured"""" debt (think credit card debt) and given a very low payment priority in your chapter 13 case, frequently being paid for pennies on the dollar.
In your Chapter 13 case, your first mortgage lender may be amenable to renegotiation of your debt. Although it will not receive the full amount promised on paper, it will still be compensated. And you? The adjustable rate mortgage you signed may have left you with a sour taste in your mouth, but a solid Chapter 13 plan can help you keep the roof over that sacred lemonade stand.""
" - https://www.affordablecebu.com/