Mortgage Re-Negotiation Options

Second mortgages and home equity lines of credit can frequently be eliminated or greatly reduced in a Chapter 13 bankruptcy case.

Advantages of Chapter 13: from USCourts.gov

Chapter 13 offers individuals a number of advantages over liquidation under chapter 7. Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. Nevertheless, they must still make all mortgage payments that come due during the chapter 13 plan on time. Another advantage of chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the chapter 13 plan. Doing this may lower the payments. Chapter 13 also has a special provision that protects third parties who are liable with the debtor on "consumer debts." This provision may protect co-signers. Finally, chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a chapter 13 trustee who then distributes payments to creditors. Individuals will have no direct contact with creditors while under chapter 13 protection. http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/chapter13.html

Bankruptcy

Chapter 7 is the one most often thought of when consumers think of filing bankruptcy. Often referred to as the fresh start bankruptcy, Chapter 7 wipes out all debts owed by the debtor. There is no compensation for the creditor and all they must write off the debt on their accounts.

To many consumers, this is the most favorable type of bankruptcy since they can, in many cases, keep their homes and automobiles—even if they have outstanding loans on them—while at the same time getting rid of all other debts. In reality, Chapter 7 is the most extreme and damaging forms of bankruptcy and should be considered only if the other forms of bankruptcy will not be of benefit.

Consumers are often surprised to find that there are types of debt that Chapter 7 does not wipe out. Chapter 7 will not get rid of student loans under most circumstances, tax debt, alimony or child support payments, court fines or penalties, other criminal judgments for restitution, and any debt incurred for personal injury to another while driving while intoxicated.

Chapter 13 bankruptcies can be much harder on the consumer in the short term but has the least amount of lasting effects caused by a bankruptcy filing. Chapter 13 allows the debtor to pay back their debts in a more manageable way. During a Chapter 13 other factors such as income, normal monthly expenses, and the overall amount of the debt involved are taken into consideration and a fair and equitable payment plan is arranged. Chapter 13 is most often used as a way to save a primary residence or automobile of the debtor if they fall into arrears.

Chapter 13 can also be used to pay back a large number of debts. It can either consolidate your overall debt to pay a manageable amount, or give you time to sell valuable assets such as a home in order to help you pay the debt. To consider filing Chapter 13 you must have a source of income. You do not need an income to file Chapter 7 bankruptcy. Once the debt is repaid, Chapter 13 is discharged.

Chapter 11 and Chapter 12 bankruptcies are typically business bankruptcy resolutions. There are many aspects of business bankruptcy that your legal representative can walk you through. How a business bankruptcy will affect your personal finances varies depending on the type of business license you have.

After you file for bankruptcy, your creditors will be required to stop calling you. They can no longer demand payment from you. If or when they do call, you must inform them of the bankruptcy action in process and give them your legal representation information so they can contact your lawyer for information about your case.

The most important thing you can do when considering bankruptcy is contact a lawyer and request a consultation. Your lawyer will be able to guide you through the complicated decisions and instruct you in how each form of bankruptcy will affect your life. Bankruptcy is not a decision to make lightly but when it is the only way out of a difficult situation it can allow you to begin your life again.