The following is a general statement of the law and may not apply to your particular situation. For answers to specific questions, please contact our office for an appointment.
Frequently Asked Questions
Why would I want to file Chapter 13 rather than Chapter 7?
There are certain debts that a Chapter 7 does not handle:
- Taxes
- Student loans
- Car loans
- Home loans
A Chapter 13 will usually allow you to handle these debts (for example, lowering the purchase price, monthly payment and interest on a car) while paying your credit cards and medical bills nothing.
In Chapter 7, you are allowed to keep property only if it is "exempt" (a house, for example, only if it has a limited amount of equity). In Chapter 13, the court can never take any of your property.
In Chapter 7, the person filing is protected from their creditors. However, those same creditors are free to collect from any co-signers. In Chapter 13, the co-signers can be protected as well.
Will my car or truck be repossessed?
NO! Once the papers are brought to the courthouse, a federal court order goes immediately into effect, preventing a car from being repossessed. In a Chapter 7 bankruptcy, the client simply continues to make the payments on the loan. In a Chapter 13, a monthly payment is worked out with the court, which in turn pays the car lender. That monthly payment is often hundreds of dollars less than the original payment, and can be imposed upon the lender regardless of how many months the client may have missed prior to filing bankruptcy.
We can even lower the purchase price, car or truck payments you are making, and the interest you are paying.
In a Chapter 13 bankruptcy, the client typically pays the value of the vehicle with either the contract rate of interest OR the market rate, whichever is lower. Since most clients owe thousands of dollars more than their vehicles are presently worth, they get to save a substantial amount on the purchase price. If we can also slash the interest rate-perhaps in half-the result is a monthly payment often HUNDREDS OF DOLLARS less than the original car payment.
Will bankruptcy affect my credit rating?
First of all, if you are considering bankruptcy, your credit is probably not all that good to begin with. Secondly, most clients report their credit rating scores actually IMPROVE upon filing their case! Clients typically start receiving multiple offers of credit about 90 days after filing Chapter 7. Credit card companies begin to see them as inviting targets for credit card solicitations because they recognize the filing individual's debt-to-income ratio has gone to zero after filing and that the filing individual is prevented from filing another Chapter 7 for six years.
So, bankruptcy can actually become a tool to rebuild a credit rating.
Can I get rid of taxes in bankruptcy?
Bankruptcy is one of the few areas where you can immediately and powerfully stop IRS and state tax collection activities. The moment the first papers are brought to the court, the IRS must immediately stop wage garnishments and bank levies! Taxes that are over 3 years old can typically be TOTALLY ELIMINATED. More recent taxes have to be paid, but usually with no more interest or penalties, and any penalties that have accrued are wiped out.
For a client that has witnessed their tax bill grow by leaps and bounds, anything that removes the interest and penalties is a huge relief.
Even if the client HASN'T FILED THEIR RETURNS FOR YEARS, their taxes can be eliminated!
Can I use bankruptcy to stop a home foreclosure?
YES! If you have missed mortgage payments, or were not able to pay off an expired balloon payment, a foreclosure process can be commenced by the lender. A Chapter 13 bankruptcy allows you to place an immediate halt to the foreclosure process. If you are able to resume the mortgage payments, the Chapter 13 allows you to make up the ones missed over several years. Even if you cannot resume the mortgage payments, the Chapter 13 may allow you sufficient time to sell your home and at least gain the equity in cash that otherwise would be lost in foreclosure.
The Bankruptcy Center once saved a client's home in 38 minutes-from the time the client walked into our office until the time the foreclosure sale was cancelled.
Can I get rid of student loans through bankruptcy?
It is nearly impossible to discharge student loans in a bankruptcy (unless the debtor is permanently disabled or diagnosed with a terminal illness) but it is possible to restructure the debt in Chapter 13.
Bankruptcy can gain you a student loan deferment of up to five years.
Though you will still owe that portion of the loan which was not yet paid, at the end of the deferment, your career will presumably be back on track and you will be debt-free and better able to resume payment of the student loan.
More questions?
Call The Bankruptcy Center of John D. Raymond at 415.992.7196.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
