Reduce to a Crush
In some instances, a vehicle or other secured loan may be reduced to its collateral value. This means that, if the loan qualifies, the borrower will pay lower fees and interest. The caveat is that the vehicle must have been purchased more than 910 days prior to the bankruptcy filing in order to qualify, and the case must be completed and a discharge granted for the cram down to be effective.
Avoid Liquidation of Non-Exempt Assets
Occasionally, debtors own properties with equity that cannot be shielded by the available exemptions. For instance, assume the debtor possesses a $10,000 automobile without a lien. Suppose the debtor has a vehicle exemption in the amount of $3,000 that he can apply to this equity. This leaves unprotected equity of $7,000. In a Chapter 7 bankruptcy, the Trustee would require the debtor to pay $7,000 to keep the vehicle, or, alternatively, would sell the vehicle to obtain funds to pay creditors. In Chapter 13 bankruptcy, the debtor is permitted to keep the vehicle, but must pay the $7,000 to general unsecured creditors over three to five years.
Plan of Repayment under Court Protection
Creditors are frequently unwilling to negotiate a payment plan, preferring instead to obtain a judgment and garnish your wages. A Chapter 13 bankruptcy allows a debtor to propose a repayment plan with payments based on their capacity to pay over a period of three to five years. During this period, creditors are prohibited from pursuing collection actions without the bankruptcy court's permission.
Stop Foreclosures and Remedy Mortgage Defaults
Those who have fallen behind on their mortgage payments and face foreclosure should consider filing for Chapter 13 bankruptcy. Chapter 13 bankruptcy will halt a foreclosure sale and give the debtor time to catch up on missed mortgage payments.
Lien Stripping
Numerous individuals have multiple mortgages on their homes. These second and third mortgages may be eliminated in a Chapter 13 bankruptcy proceeding. When a lien is completely unsecured, meaning there is no value to secure it, it can be released. Here's an illustration: You have a first and second mortgage on your property. The initial mortgage balance is $200,000. The second mortgage amount is $50,000. The real estate is valued at $190,000.00. In this scenario, the second mortgage could be removed because the collateral used to secure the loan has no remaining value.
The choice between Chapters 7 and 13 requires serious consideration. An experienced bankruptcy attorney can assist you in determining which Chapter is appropriate.""
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