Should you consider filing for bankruptcy?
What is a Chapter 13 Bankruptcy? Chapter 13 bankruptcy is generally known as a “restructuring” bankruptcy. This type of bankruptcy is generally done by people who make over the State Median Income in Michigan or if they have too many assets to keep in a typical Chapter 7 liquidation case. It requires debtors to make affordable minimum monthly payments to a Court Trustee for a period of three to five years, sometimes less.
Why would I do a Chapter 13? People do Chapter 13 for many different reasons and a Chapter 13 can be put to many uses. If you have fallen behind in your mortgage payments, a Chapter 13 can give you legal protection from foreclosure and allow you to “catch up” on your mortgage payments. Chapter 13 also allows debtors to “restructure” their debt. While a Chapter 13 case is in action, all interest rates drop down to 0% on unsecured debt, allowing you to make payments on just the principle balance of your debt. In some cases, a debtor may only pay back a percentage of their total unsecured debt, such as $.10 on the dollar or 10% of the total debt they owe with the rest being forgiven.
What other benefits are there? In Chapter 13, there’s also what’s known as a “lien strip” and “cram down” principles. These are complicated legal issues that can be discussed with your attorney, but basically, if you have a second mortgage on your house that is entirely unsecured (your house is worth less than what you owe on the first mortgage), that second mortgage can be “stripped” or dropped off of your house during a Chapter 13 case. There is also the possibility of a “cram down” on a vehicle purchased more than 910 days before you file your case. This means that if you own a car worth only $10,000 fair market value and you still owe $15,000 on the car loan, that loan can be “crammed down” to only $10,000 via a Chapter 13 case.
How will this affect my credit? A bankruptcy is on a person’s credit report for 7-10 years. However, bankruptcy is very common and if creditors didn’t extend credit offers to everyone that filed for bankruptcy, the creditors would not make any money. A Chapter 13 bankruptcy may look better on a credit report than a Chapter 7 liquidation because in a Chapter 13, your creditors are receiving some amount of payment. Ask your attorney how to raise your credit score as quickly as possible after a bankruptcy case is over.
Contact Attorney Allison Greenlee Korr at 269-381-4471 to schedule a free bankruptcy consultation today to go over your personal bankruptcy options or see other topics below.
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