|Good reasons to file Chapter 13 Bankruptcy
1. Stop the foreclosure on your home ( aka Foreclosure Defense )
In bankruptcy, an automatic bankruptcy stay goes into effect that prohibits any collection action against you, including stopping a foreclosure immediately upon filing. Filing a Chapter 13 bankruptcy is a powerful foreclosure defense. Any mortgage payment arrearages (i.e., past due payments) will be paid back through the 3 to 5 year Chapter 13 payment Plan. Those arrearages will get paid through the Chapter 13 Trustee from the regular monthly payments you make to the Trustee. This gives you opportunity to catch on your mortgage payment delinquency/arrears in a structured way while at the same time protecting your house from foreclosure.
2. Cure tax or child/spousal support obligations
Non-dischargeable taxes or child/spousal support obligations can be paid through a Chapter 13 plan over 36 to 60 months depending on the plan length for your case. The Chapter 13 will keep the tax authorities and domestic support obligation authorities off your back (i.e. they cannot collect) while you are in Chapter 13 bankruptcy, and it provides you the breathing room for you to pay those debts off.
3. Stretch out your auto or other secured debt payments & propose a reduction in the interest rate
In a Chapter 13 bankruptcy you can spread out your vehicle payments or other secured debt payments (e.g., secured furniture, computer, jewelry, tires, etc.) over the life of your 3 to 5 year Chapter 13 payment plan. The interest rate can be reduced to a lower rate if you have a high rate of interest. Further, if you are behind on your secured debt payments, any arrearages can be paid through the Chapter 13 plan, which would allow you to get current with your payments.
4. You make too much money each month to qualify for Chapter 7 bankruptcy, but can still eliminate debt in Chapter 13
If you need to eliminate debt to get a fresh financial start in your life but you do not qualify for Chapter 7 liquidation bankruptcy because you make too much each month, then a Chapter 13 bankruptcy is often the powerful remaining option to both be protected from your creditors and to eliminate your burdensome debt through a structured payment plan. In a Chapter 13 Plan, you pay in a set monthly payment to the trustee based on your monthly household budget. And that household budget will show what you can, actually, afford to pay each month because you no longer have to pay your unsecured creditors while in the Chapter 13 Plan. Generally, whatever debts have not been paid by the Trustee by the end of your Plan, will be eliminated with a bankruptcy Discharge.
5. Keep non-exempt property (in most instances, but case dependent)
In Chapter 13 bankruptcy cases, people are able to keep non-exempt assets (those assets not protected by the law) that normally could have been taken if the person had filed a Chapter 7 bankruptcy. When a Debtor has enough equity in his or her house, often a Chapter 13 bankruptcy is a safer bankruptcy to file than Chapter 7, because the Chapter 13 Trustee's role is not to liquidate (i.e., sell) debtor's property. However, the Debtor still must pay, after calculating in deductions (for example, cost of sale, homestead exemption, Trustee's fees, etc.), the equity in the house to his or her general unsecured creditors during the life of the Chapter 13 Plan (i.e., the 3 to 5 year Plan). This is called the "best interest of the creditors number" or "BIN" for short. The BIN analysis can be complex, so you should talk to an experienced bankruptcy lawyer who can advise you whether a Chapter 13 bankruptcy would be feasible (i.e., if the payment plan would work within your budget) given the requirement in the Plan to pay the BIN.
6. Strip off wholly unsecured liens on your home
If the value of your house is less than one or more of your junior liens (for instance a 2nd or 3rd mortgage, or Home Equity Loan) on your home, then there's a possibility that one or more of the junior liens can be stripped off (eliminated completely!). The junior lien must be wholly unsecured... meaning there is not enough equity in the home to pay not one $1.00 towards that junior lien if the house were sold or foreclosed. For example: Say you own a house worth $500,000 and you have a $510,000 first mortgage. In this situation, you can strip any liens that are junior to your first mortgage. This is because there is no equity in the house. So if you had a second mortgage or home equity loan with a balance of $75,000, you could get rid of it through lien stripping in a Chapter 13 bankruptcy.
7. Reinstate your driver's license and eliminate traffic fines
If your driver's license is suspended because of unpaid fines a Chapter 13 Bankruptcy filing will allow you to reinstate your driving privileges usually within two or three days of filing your bankruptcy case. You must have a source of income and make payments to a Chapter 13 Plan. At the end of the 3 to 5 year Chapter 13 case all of your dischargeable debt (with few exceptions) is discharged, including traffic fines, and you will no longer be liable to pay it. Also, because the infraction fines are discharged your driving privilege will no longer be suspended because of them. If your driver's license is suspended because of an uninsured accident either a Chapter 7 or Chapter 13 case will allow you to reinstate your driving privilege within just a few days of filing your case.
8. Get temporary creditor protection through Chapter 13 Bankruptcy until you no longer need to be in the Plan
Some people utilize Chapter 13 bankruptcy as a tool to get protected from the creditors temporarily. Once that person gets his/her financial situation or business (referring to sole proprietorships, self-employed, or independent contractors) in order and no longer needs the protection of bankruptcy, then he/she can have the bankruptcy lawyer voluntarily dismiss the case. The debtor has an almost absolute right to have his or her case dismissed in Chapter 13 bankruptcy. This is not true in Chapter 7 bankruptcy.
9. Chapter 13 Co-Debtor Automatic Stay protects others that owe money with the Debtor
When a debtor files a Chapter 13 bankruptcy with the Federal Bankruptcy Court, an Automatic Stay goes into effect "automatically" upon filing, which prohibits all collection activity against that debtor. Additionally, in Chapter 13 bankruptcy a Co-Debtor Stay goes into effect that prohibits any collection activity against any other person who is co-obligated on any debt with the debtor, hence the word "co-debtor." Perhaps that co-debtor is a non-filing spouse, or family member, or friend. A Chapter 7 bankruptcy does not have a co-debtor stay. Therefore, this is another advantage of a Chapter 13 over Chapter 7 bankruptcy.
|Benefits of Chapter 13 bankruptcy:
Stop: Foreclosure, Garnishments, Lawsuits, Collections, and Repossessions
Protect Your: House, paycheck, bank accounts, auto, etc.
+ Chapter 13 bankruptcy will protect a Debtor (i.e., the person filing bankruptcy) from his creditors while he pays back his creditors what he can afford from his household budget over a 3 to 5 year payment plan. A very powerful injunction called the "Bankruptcy Automatic Stay" prohibits any collection activity against someone in bankruptcy during the entire process. There are some exceptions to this. The Chapter 13 bankruptcy is called a "Reorganization" bankruptcy as the Debtor organizes his finances through a court -supervised repayment program that all creditors have to comply with under the bankruptcy law.
+ In a Chapter 13 bankruptcy, a Plan will be created which will dictate how creditors will get paid. The Debtor will make one payment to the Bankruptcy Trustee each month based on what he can afford out of his monthly budget (called your monthly disposable income). The monthly Plan payment is usually the same amount each month for a typical plan. However, the plan payment amount can vary if one's income is seasonal. The Debtor's monthly budget consists of his net ("take home") income compared to his monthly household expenses not including the debts he is trying to get rid of in the bankruptcy. Then the Bankruptcy Trustee will take the Debtor's monthly payments and distribute that money back to the creditors according to the terms of the Chapter 13 Plan that's been approved by the Court.
+ Chapter 13 bankruptcy can sometimes reduce the loan amount and interest rate on secured debts like an auto loan or other loan (this is called a "cram down").
+ Chapter 13 can strip off a wholly unsecured lien off a primary residence. When the value of a house is less the liens against it, there is a possibility to strip off any junior lien (i.e., a 2nd, 3rd, HELOC etc.).
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