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Our San Francisco Bankruptcy Attorney Discusses Benefits of Chapter 13 Bankruptcy

Ed Hsu Feb. 15, 2023

Bankruptcy can be a hard decision to make due to the complexity of each individuals situation.  Many people tend to shy away from the Chapter 13 bankruptcy because they do not know all the benefits that it can offer, which are many.  A Chapter 13 bankruptcy is a repayment plan over 5 years based on disposable income.  Therefore the amount of unsecured debt that you pay back could be pennies on the dollar.  To make it easier, I have outlined some of the benefits of a Chapter 13 bankruptcy below.

1.  Paying Back Pennies On the Dollar: The amount of credit card or unsecured debt that a debtor would be paying back in a Chapter 13 plan could be pennies on the dollar.  This is because the amount paid back is determined by the % of disposable income the debtor has after expenses have been deducted.  After such expenses as income taxes, mortgage, car payments, health insurance and retirement contributions, most debtors have very little left over to pay the creditor.  Therefore, the amount put into the Ch. 13 plan could be very small and at no interest.  This beats a consolidation company or debt settlement agency taking $500/mo to negotiate debt down since you would most likely be paying more to the settlement than the Ch. 13.

2.  Stripping a Second Mortgage Off the Property: Homes are becoming increasingly hard to maintain.  Nowadays it is not uncommon for a homeowner to have two or even three mortgages tied to their properties.  In a Chapter 13 bankruptcy, if your house is underwater (you owe the lender more than what it is worth out on the market), you can do what’s called a “lien strip”.  Essentially, a lien strip is just removing the second mortgage off the property leaving only the first mortgage to be paid.  With this option in a chapter 13 bankruptcy, you could be losing hundreds of thousands of dollars, never to repaid again.

3.  Stopping Foreclosures: A Chapter 13 bankruptcy can also help you to stop foreclosures on any homes with such notices.  This bankruptcy also allows the debtor to catch up on the arrears that are owed in the Chapter 13 plan instead of coming up with the thousands of dollars in one day to save their homes.

4.  Lowering Monthly Payments: You can also lower your monthly payments on student loans or car loans when you enter into a Chapter 13 bankruptcy.  Any outstanding loans that you may have can be put into the chapter 13 plan to be paid off in five years regardless of what you have agreed with the lender.  The interest is nominal and it spreads the payments out to make them more manageable.  Your car payments can even be cut in half to give you the breathing room that you need to keep up with your daily expenses.

A Chapter 13 bankruptcy can help many debtors out there, so don’t be afraid to call an attorney to discuss these options.  If you wish to discuss your situation, please do not hesitate to contact any one of our offices.  We look forward to speaking with you soon!