How To File For Bankruptcy And Keep Your Property

Law Blog

You can file for bankruptcy protection and still keep your home and car by filing a Chapter 13 bankruptcy petition. This type of bankruptcy allows you to make arrangements to catch up on late house and car payments, while arranging a payment plan to pay other debts.

Chapter 13 bankruptcy and secured debts

Secured debts are those that are owed for one specific piece of property, such as a car or house. Secured debts must still be repaid in full under Chapter 13 bankruptcy, but home foreclosures and car repossessions are automatically halted under an automatic "stay" of collection processes that goes into effect when a bankruptcy petition is filed in federal court.

Of course, the debtor must have sufficient income to repay the mortgage or car loan if other debts are reduced through the bankruptcy decision. If the mortgage or car loan cannot be repaid, the debtor must choose Chapter 7 bankruptcy, which eliminates all debt but forces the debtor to relinquish all property beyond specified allowances to repay creditors as much as possible.

Chapter 13 bankruptcy and unsecured debts

Unsecured debts are those that are not secured by a specific property, such as credit card debt or personal loans. These debts must be repaid according to discretionary income after personal expenses and secured loans payments are deducted from the debtor's income.

If the debtor makes less that their state's median income, they must make monthly payments to unsecured creditors for a period of three years. If they make more that the state median income, they must enter a five year repayment plan. After the mandated repayment period, all remained unsecured debt is cancelled.

The payment amount is determined by the debtor's discretionary income, but unsecured creditors must receive at least what they would have received if Chapter 7 bankruptcy was filed. If a debtor has substantial assets or equity in their home, the payments will be higher. 

However, if the debtor has little equity or assets, payments may be a fraction of the actual amount owed. The debtor is allowed to have some assets that cannot be factored into the repayment plan. The value of the protected assets vary by state, and a bankruptcy attorney may be helpful in advising a debtor of their protection under the laws of their state.

For example, each state has a homestead exemption, in which a debtor is allowed to have a specific amount of equity in their home that cannot be considered in repayment plans. Older vehicles may be exempt if their value doesn't exceed state guidelines. 

Many states also have a "wild card" exemption, which exempts any property up to a state mandated value from consideration in determining repayment plans.

Chapter 13 bankruptcy can be complicated, but can give debtors a fresh start while allowing them to keep the basic property they need to live, work, and rebuild their lives. To learn more, talk to an attorney like Attorney Joseph Aguglia.


31 December 2015

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