The following three posts will address many of the questions our Phoenix area clients may have about Chapter 13 Bankruptcy. The first three questions are as follows:
What is a Chapter 13 bankruptcy?
Chapter 13 is a kind of bankruptcy in where a debt repayment plan is constructed to consolidate debts and make payments on your debt over a 3 to a 5-year time frame. You file a plan with the Arizona Bankruptcy Court under which you make payments to a Chapter 13 Trustee, based upon your ability to pay.
The good part is that your ability to pay is normally based on what you can afford to pay when looking at your net income and subtracting all your living expenses. Generally, this means that you pay back much less than what you actually owe, interest and penalty free.
There is actually no requirement that any of your unsecured creditors receive a dime in Chapter 13. What does get paid back is generally paid back interest-free. Chapter 13 is also called the “wage earner” bankruptcy and requires that you have a steady source of income, such as wages, self-employment income, unemployment income, or social security income, to be eligible.
Can Chapter 13 Stop a Foreclosure or a Repo?
Generally, a Chapter 13 Bankruptcy filing will immediately stop any Arizona foreclosure proceedings or repo attempts. Some exceptions to the automatic stay may apply, mostly if you have filed bankruptcy recently.
Chapter 13 is a really great option for dealing with a foreclosure. You have multiple options within Chapter 13 for how you might catch up during the pendency of the plan. Maybe you catch up in even payments over three to five years or maybe you pay very little every month and then catch up in a refi or sale three years from now on your terms. Maybe you can only afford to pay a little every month now and then ramp up your payments later. Chapter 13 gives you control.
Chapter 13 is the perfect option for dealing with past due car payments. For starters, there is no immediate need to catch up the payments that you are behind. Worse case scenario, you pay the car off over three to five years usually at a reduced rate of interest. If the car was financed over 910 days ago, you can even reduce the amount you pay back to the value of the vehicle, giving you the opportunity to get rid of negative equity.
You should review any potential exceptions to the stay with your bankruptcy attorney. In Chapter 13, you will be able to catch up the mortgage and car payments over the life of your Chapter 13 plan. Phoenix Fresh Start Bankruptcy Attorneys can design a repayment plan for those debts with your help.
Can I Just Refi My Home to Save It from Foreclosure?
If you have equity, you might be able to refinance in order to save your home; however, refinancing or taking out a second mortgage may create a bigger mortgage than you can afford. Plus now you are paying interest on the arrears.
A refi may waste away your equity and any value in your homestead exemption. You should consult with Phoenix Fresh Start Bankruptcy Attorneys before refinancing to pay off unsecured debts because it is normally not a great move.
All the costs associated with closing a new loan, such as fees, points, appraisals and title costs will often add as much as $10,000 to the new loan. Chapter 13 may be a better option for you to catch up on any payments that have not been made on time on your home loan. Curing the arrearage at zero percent interest through a Chapter 13 bankruptcy will protect your equity and will buy you the additional time you need without needlessly throwing away equity or cash.
Remember that Phoenix Fresh Start Bankruptcy Attorneys are always available to answer all your Chapter 13 Bankruptcy questions.