Lien Stripping an Auto Loan in Chapter 13

Chapter 13 of the Bankruptcy Code contains many useful provisions that are not available to Chapter 7 debtors. One of the most useful is the ability to cram-down an over-secured auto loan to the actual market value of the vehicle, and pay the auto loan over the duration of the Chapter 13 bankruptcy plan.

The Bankruptcy Code recognizes that a lien is only secured to the extent of the value of the property. If the amount of the lien is more than the value of the property, the debt is separated into two parts: secured and unsecured. During a Chapter 13, the amount of the loan that exceeds the value of the vehicle can be stripped away.

For instance, if your vehicle is worth $10,000, but the secured auto loan balance is $13,000, the bankruptcy will separate the auto loan into a secured debt of $10,000 and an unsecured debt of $3,000. The secured portion must be paid in full during the Chapter 13 case, and the unsecured $3,000 amount will be paid along with other unsecured creditors (usually pennies on the dollar, if anything).

Another potential benefit to the Chapter 13 debtor is that the contract terms can be modified during the Chapter 13 repayment period. In some cases the repayment period can be lengthened or contract interest rate can be lowered by the bankruptcy court. Changing the contractual terms can make a significant difference in the ability of the debtor to repay the debt.

If you are struggling with debts you cannot pay and own a vehicle that is worth less than you owe, you may be eligible to reduce your principle and your monthly payment on your vehicle loan. Speak with an experienced bankruptcy attorney and discuss how a Chapter 13 bankruptcy can help you reduce your debt and make your finances work for you and your family.

Can I Keep My House If I File Bankruptcy?

One of the most common and important questions asked by a client during the initial bankruptcy consultation is, “Can I keep my house?”

The happy answer is, “Yes.” However, every client’s case is different and requires a skilled and experience attorney to evaluate your situation and help you choose the appropriate debt relief process.

The first question is whether there is equity in your home. Every state allows the debtor to exempt home equity from creditors during bankruptcy. Home equity is simply the difference between the amount that is owed and what the property is worth. If you have more equity in your home than can be exempted, you may need to consider either a Chapter 13 repayment plan or a non-bankruptcy option for debt repayment. In a Chapter 13 the debtor pays the amount equal to the non-exempt home equity to unsecured creditors (like credit cards and medical bills) over a three to five year period. If Chapter 13 is not a feasible option, the debtor may want to consider borrowing against the home equity to pay unsecured creditors.

The second issue is whether you can afford to keep the home by making the monthly payments. A home mortgage is a secured debt which must be paid or you must surrender the property back to the mortgage holder. When circumstances have changed and you can no loner afford to keep your home, the bankruptcy laws can help you to leave on your terms without any lingering debt.

In some cases a third issue is present: the debt is more than the value of the house. In those cases bankruptcy may help either through lien stripping an entirely unsecured second mortgage, or by encouraging the mortgage holder to negotiate for a modification and reduction in principle. Typically the mortgage holder does not want your property, and is usually willing to discuss payment options once a bankruptcy case is filed.

Finally, some debtors are facing foreclosure from an uncooperative mortgage holder. A Chapter 13 bankruptcy can be used to force the mortgage holder to accept payments that cure mortgage arrears over three to five years.

There are many options available for saving your home. Your bankruptcy attorney can discuss the pros and cons of each and help you decide which option is best for your family. Use the federal law to your advantage and discover how the bankruptcy laws can help you keep your home.