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Why YOU Should File Chapter 13 bankruptcy

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Hopefully you have read our prior blog discussing the various benefits of filing a Chapter 7 bankruptcy case. This blog will focus on the advantages of a Chapter 13 bankruptcy. In most instances, filing a Chapter 13 provides you more flexibility in restructuring your debt and the following benefits:

  • Automatic stay. As soon as you file a bankruptcy case, the automatic stay is effective. It prohibits creditors from taking any collection actions against you while your bankruptcy is active. The stay halts all collection calls, lawsuits and garnishments.
  • Debt consolidation. Your Chapter 13 plan allows you to reorganize your debt and consolidate it into one monthly payment that you make to the trustee, who then disburses the funds to your creditors as set forth in the terms of your plan.
  • Elimination of debt. Your unsecured debt, such as credit cards and medical bills, is paid a percentage of what is owed under your repayment plan. The percentage depends on your income and debt, but most debtors pay pennies on the dollar owed, if anything at all.
  • Cure delinquencies. If you have fallen behind on your mortgage loan payments or your vehicle loan payments, you can include small payments in your Chapter 13 plan to be applied to curing your delinquencies. A Chapter 13 case lasts three to five years, which typically gives you plenty of time to cure your payment defaults and get your secured loan back on track.
  • Lien stripping of inferior mortgages. If you have a second or third mortgage on your home, you may be able to “strip” the lien and treat it as an unsecured debt. To qualify, the value of your home must be less than what is owed on the first mortgage. To learn more about lien stripping, please read out blog titled Stripping Off Junior Mortgages in Bankruptcy.”

The above are just a few examples of the benefits offered by filing a Chapter 13 case. If you are interested in learning more about how a bankruptcy filing will impact your debt, contact Faro Crowder, PA to schedule an appointment.


What Will I Pay in a Chapter 13 Case?

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If you are struggling to pay your bills and your household income is higher than the applicable median income, filing a Chapter 13 case may the answer to your problems. In a Chapter 13 bankruptcy, you will submit a repayment plan that sets forth how you intend to repay your creditors, either wholly or partially. The biggest concern for most individuals is how much they will be required to pay under their plan. To calculate this amount, numerous steps must be taken.

As your bankruptcy attorney, we will apply the means test to your individual finances to determine whether your income is higher or lower than the median income for your household size. The median income for each state is set by the U.S. Census Department. If your income falls below the applicable median income, the term of your Chapter 13 plan will be 36 months. Your “disposable income” or the sum that is remaining after you pay your “reasonable and necessary expenses,” will determine the amount of your monthly plan payment.

If your household income is greater than the median income, we will apply the Internal Revenue Service (IRS) standards in calculating the amount of your plan payments. The IRS standards permit you to apply deductions for specific expenses such as your rent or mortgage payment and other necessary living expenses such as clothing, food, medical costs and other similar expenses. A seasoned Chapter 13 attorney can assist you in taking full advantage of all the applicable deductions. Once all of the deductions are applied to your gross monthly income, the remaining balance is your projected disposable income that will be used to fund your repayment plan.

The Chapter 13 procedure can be complicated, but we can walk you through the process step by step. If you are interested in learning more about how a bankruptcy filing will impact your debt, contact Faro Crowder, PA to schedule an appointment.


Car Cramdowns in Bankruptcy

Most consumers owe more on their car loan than their vehicle is worth. If you are also overwhelmed by other debt and you have a regular source of income, it may be time to consider filing a Chapter 13 bankruptcy.

Chapter 13 Bankruptcy and the “Cram down” Process

When an individual files a Chapter 13, he or she may be able to take advantage of the “cram down” process to reduce the balance on the car loan and the applicable interest rate.

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Chapter 13 Bankruptcy May Lower the Balance Due on the Vehicle Loan to the Amount That the Car Is Worth

When you purchase a vehicle, it starts to depreciate in value as soon as you drive it off of the dealership’s lot. Thus, it is common for car owners to be “upside down” on their auto loans. A debtor in a Chapter 13 case can lower the balance due on the vehicle loan to the amount that the car is worth. To take advantage of the cramdown procedure, a debtor must have purchased the car at least 910 days (nearly 2.5 years) prior to filing the bankruptcy petition.

Chapter 13 Bankruptcy Repayment Plan

The cramdown can be accomplished through your Chapter 13 repayment plan. The debtor proposes that the car lender should be paid the value of the vehicle rather than the full amount due under the loan. Consider this example: If you owe $10,000 on your auto and its value is only $7000, then your plan can provide that the lender have a secured claim for $7000 and an unsecured claim of $3000. The logic is that if the lender seized your car and sold it, the lender would only be able to recover $7000 since that is what the car’s value is. Classifying the $3000 as an unsecured debt means that you will likely only pay a small portion (if any) of this amount under the Chapter 13 plan.

The cramdown process may also allow you to reduce the applicable interest rate under your contract with the lender. The applicable interest rate can be determined by the bankruptcy court, but it is commonly the prime interest rate with a little extra added on.

Contact a Brevard County Bankruptcy Attorney at Faro & Crowder, PA

If you are interested in learning more about how a bankruptcy filing will impact your debt, contact Faro Crowder, PA to schedule an appointment. We are located in Melbourne, Florida on Sarno Road and serve residents and businesses of the Space Coast and Brevard County.

Services Areas

We provide services throughout Central Florida including: Melbourne, Titusville, Palm Bay, Merritt Island, Cocoa, Cocoa Beach, Satellite Beach, West Melbourne, Cape Canaveral, Viera and Eau Gallie.

Get In Touch with Faro & Crowder, PA

Phone: (321) 784-8158
Address: 1801 N. Sarno Road, Suite 01
Melbourne, Florida 32935
Email: info@farolaw.com

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