Chapter 13—that sounds like a four letter word to some of our potential clients. If people are going to go through the hurdle of filing bankruptcy, they certainly do not want it dragged out for any longer than necessary. However, not everyone qualifies for a Chapter 7, the so-called “Straightforward Bankruptcy. This may seem daunting, but filing for a Chapter 13 can be helpful to debtors for the following reasons:
- Mortgage Arrearage – If you are behind on your mortgage payments and your servicer will not work with you on a repayment option, a Chapter 13 basically forces their hand and creates a 3 or 5 year repayment plan of the amount you are behind and any attorney’s fees.
- 2nd Mortgage Lien Strip – Did you enter into a second mortgage or a home equity loan and you are paying more than the property is worth? It may be possible for you to strip that lien off of your home entirely. And even if you cannot do this, sometimes you may be able to “cram-down” the amount owed if you can pay the lowered amount before the end of your plan.
- Vehicle Cram-down – Similar to #2 two above, but slightly different. Let’s say you take out a loan on your vehicle. We know that many vehicles lose a lot of value once you drive it off the lot. If you have a vehicle loan you have been paying on and you still owe more than it is worth, then you may be able to “cram-down” the amount of your loan. Since cars (with the exception of leases) are normally paid off in the plan, this is more common than the mortgage version. The rest of the loan is treated as unsecured debt.
- Interest Caps – This is often a big plus with a Chapter 13. Many finance loans, and even some regular loans if you have bad credit, have ridiculous interest rates on car loans. If you are stuck in one of these loans, you may find some relief in your plan. Because a Chapter 13 only lasts 3 or 5 years (COVID-19 has provided an exception where you can lengthen beyond 5 years), you have to be able to pay off your car loan in that time. To help, there is an interest cap on loans paid in the plan. As of the date of this blog in SC, the interest cap is 5.75%. Sometimes this cap will change but usually it is more reasonable than the original loan.
- No Negotiations with Creditors – Have you ever tried to negotiate a debt with a credit card or unsecured loan and they were less than helpful? In a Chapter 13, they basically lose that option. The Trustee will either approve your payment plan through confirmation or they will give reasons to have it changed. Once confirmed, your unsecured creditors get what the Trustee gives them.
Chapter 13 can certainly be a scary option, but as you can see from the above, there are positives to filing. If you would like to discuss any of these “perks” further with our South Carolina Bankruptcy Attorney, Huong Lam, please give us a call at (843) 839-9995 and set up a consultation. We are here to help you!