Discharge debt and taxes
With the collapse of the real estate market and loss of jobs many of us, at no fault of our own, are overwhelmed with debt. Given the high interest rates being charged by greedy banks and credit card companies it will take years to pay off these balances. We have all heard of the bail out for banks and the auto makers. While there is no bail out for families and small businesses, there are federal laws available for those of us burdened by debt in Title 11 of the United States Code, (the Bankruptcy Code). The government has made these laws available to us because it recognizes that citizens burdened by debt are less likely to contribute to the economy. We should take advantage of these laws. The lenders and creditors are not working with us. Bankruptcy is a way for hardworking Americans to get a fresh start.
There are several different kinds of bankruptcies, but most consumers file under either Chapter 7 or Chapter 13.
Chapter 7 gives you the right to get rid of most of the common types of unsecured debts, like credit card debt, medical bills, bank loans, finance company loans and credit union loans. It can also get rid of unsecured debts left over from a divorce, a failed business, personal guarantees, and even certain income taxes over 3 years old.
If you qualify for a Chapter 7, you make no more payments to unsecured creditors, except certain taxes, fines and penalties, and family law obligations. In most Chapter 7 bankruptcies consumers get to keep all of their assets, including their cars and home. The whole process takes approximately 4 months. You usually do not have to appear in court. You attend a meeting before a trustee which takes about 5 minutes.
Chapter 13 requires you to make monthly payments to the Chapter 13 trustee, so why would anyone file a Chapter 13 instead of a Chapter 7? Well, some people make too much money and do not qualify for a Chapter 7. The government requires them to make monthly payments on a percentage of their debt based on their income and expenses. Other people file Chapter 13 because you can do things in a Chapter 13 that you cannot do in a Chapter 7.
You can use Chapter 13 to catch-up on car or house payments. You can’t do this in a Chapter 7. The total amount needed to bring your loan current can be paid in equal monthly installments over 3 to 5 years. This will prevent your lender from repossessing your car or foreclosing on your house as long as you perform under your plan.
You can use a Chapter 13 bankruptcy to eliminate an unsecured 2nd or 3rd mortgage on your house or rental property. For example, if your house is worth $200,000 and you have two loans on it: a first mortgage for $300,000 and a second mortgage for $100,000, in a Chapter 13 you can eliminate the second mortgage, which means you do not have to pay it anymore.
You can use Chapter 13 to reduce the interest rate you pay on many secured debts, like car loans, and if you have had the car loan for over 910 days you can also reduce the balance owed on the loan down to the present value of the car. These benefits are not available in a Chapter 7 bankruptcy.