Chapter 13 is bristling with tools to help you manage your mortgage and vehicle loan.
Chapter 7 vs. Chapter 13 in General
Chapter 7 “straight bankruptcy” and Chapter 13 “adjustment of debts” give you two very different ways of attacking your debts. Grossly oversimplifying, Chapter 7 cleans off your slate of simple debts so that you can have a fresh start within a few months. Chapter 13 shoves your debts around in a way that you can sensibly deal with your more complicated debts, so that you can have a fresh start after three to five years. Debts on your home and vehicle can be among these “more complicated debts” better handled under Chapter 13, especially if you have fallen behind and are at risk of foreclosure or repossession.
Saving Your Home from Foreclosure
- Chapter 13 stops a foreclosure, and then gives you 3 to 5 years to pay any mortgage arrearage. That length of time significantly eases the burden of catching up.
- Although that arrearage is usually caught up by chipping away at it month-by-month, you may be able to do so in other ways, including by selling your home a few years after filing the case. This can give you some valuable flexibility, and allows you to keep your home for a crucial chunk of time—to stay in a local school district another couple years, for example—for less money each month.
- You may be able to significantly, permanently reduce the monthly cost of keeping your home by “stripping” off any second or third mortgages that have no equity. If your home is worth no more than your first mortgage, the second mortgage can be removed from your home’s title, allowing you to stop paying that second mortgage. Same with a third mortgage if the home is not worth more than the amount of the first and second mortgage balances combined.
- If you’ve fallen behind on your property taxes, you are given time to bring them current similar to the way your mortgage is brought current. What’s important is that during that stretch of time, your home is protected from the taxing authority’s foreclosure, and from your mortgage lender itself foreclosing for you not having paid those taxes.
- Most judgment liens can be taken off your home title permanently. The debt that resulted in a judgment against you is either paid in part or sometimes not at all, and then at the end of your case the balance is discharged (written off).
- If you have a lien on your home which secures a debt that cannot be discharged—such as child/spousal support arrearage or relatively recent income taxes—you pay off that debt through your Chapter 13 plan, and at the end of your case the lien is released from our title.
Saving Your Vehicle from Repossession
- If you are behind in your payments, and your vehicle loan is less than two and a half years old, then Chapter 13 will allow you to catch up on your back payments through relatively small installments lasting as much as five years.
- If you are behind but your loan is more than two and a half years old, you can do a “cram down”: reduce the balance to the fair market value of the vehicle, usually reduce the interest rate, and stretch out the payments beyond the usual length of the contract. These all work together usually to reduce both your monthly payment and the total you for the vehicle.