Charlotte Bankruptcy Blog

Posts containing useful information for anyone considering a North Carolina bankruptcy lawyer.

What Happens To My Car In Bankruptcy?

If you own a car or lease a car, you will need to decide what happens to your car in bankruptcy. You have the choice to keep your car and the debt associated with it, or you can choose to surrender the car in bankruptcy. This means the car goes back to the lender, and the debt goes with it. There are one or two exceptions, which we will address. In summary, you can either keep the car and the debt, or ‘get rid of’ the car and get rid of (discharge) the debt.

How Can I Keep My Car In Bankruptcy?

If you want to keep the car in Chapter 7, you will need to be current on payments by the date of your 341 meeting. You will sign a Reaffirmation Agreement with the lender, which will contain the same terms you had prior to the bankruptcy. The reason for the agreement is the filing of your bankruptcy technically relieves you of the obligation to repay the loan; however, if you want to keep the car, you will need to renew the agreement. The Reaffirmation Agreement accomplishes that.

If you want to keep your car in Chapter 13, you can do so. Your interest rate may decrease due to the interest rate set by the bankruptcy court. Additionally, if you have had the vehicle for more than 910 days, you may be able to lower the balance on the loan in Chapter 13, which can be a tremendous benefit.

How Do I Surrender My Car In Bankruptcy?

If you want to surrender the car and the debt, it is easy. We file your bankruptcy and reach out to the car lender to make arrangements for them to pick up the car or have you drop off the car in the alternative.

You Have Options

The upside to addressing a car in bankruptcy is that you have options. Most clients are incredibly happy with the results of bankruptcy including the ability to have flexibility regarding vehicles. The rules of bankruptcy heavily favor the debtor—the person filing—and as a result, if you would like to keep a vehicle while discharging all unsecured debt, it is almost always an option.

Speak With A Bankruptcy Lawyer Today

If you would like to speak with us about what happens to your car in bankruptcy, you can request a free consultation. Just call 704.749.7747 or click HERE to request a time to talk. If you would like to watch a short video from Chris Layton, it may help you make a decision regarding working with us. We know you have choices. We hope you choose Layton Law.

When Does Bankruptcy Fall Off Your Credit Report?

This is a great question and shows an eye toward the future. The good news is that you will be extended credit much sooner than the date by which the bankruptcy will fall off your credit report. In this article, we will touch base on the timeline for when bankruptcy falls off your credit report, and also try to give some indicators as to when you can expect to be extended credit after filing bankruptcy.

Your Filing Date and Chapter Filed

If you filed Chapter 7, it will be 10 years after the filing date before the bankruptcy falls off your credit report. If you file Chapter 13 it will be 7 years after the filing date of your bankruptcy. One thing that may affect this timeline is your original delinquency date on the debt. If an account was delinquent upon filing, it will be deleted from your credit report seven years from the original delinquency date. It is noteworthy that filing bankruptcy does not extend the original delinquency date or change the date by which the account will remain on the credit report, per an article by Experian.

When Can I Get Credit Again?

The desire to know when you will be able to get credit again makes sense. We know you’re interested in getting credit after bankruptcy because you have a goal of rebuilding your credit score. If you filed a Chapter 7, you will typically be able to get credit again about three months after your discharge is entered. Interest rates will be high but if your goal is to build your credit score, you should focus on charging some items each month and paying the balance each month. This way, you are not paying interest.

If you filed Chapter 13, it will be about three to five years from the date of your filing. This makes sense, as Chapter 13 is typically a 36 or 60-month plan. Many of our clients qualify for new automobiles and refinances during an active Chapter 13. Hopefully, this helps to demonstrate that you will continue to have access to credit even after filing bankruptcy.

When Can I Qualify For A Mortgage After Filing Bankruptcy?

According to Realtor.com, you will need to wait two years after bankruptcy in order to qualify for mortgage lending. This matches with what we see over and over from our clients as well. Consider what an amazing solution this is—you file your bankruptcy, receive a discharge of thousands of dollars of debt, and two years later you are back in the home purchasing market. This gives us and our clients tremendous excitement for the future as we work together to prepare their bankruptcy filing.

Speak With A Bankruptcy Lawyer Today

As you can see, even if your focus is when bankruptcy falls off of your credit, the truth is you will have access to credit much sooner than the number of years it takes for bankruptcy to no longer show on your credit report.

If you’d like to speak with an attorney about filing bankruptcy, call us at 704.749.7747 or click HERE to request a consultation. If you’d like to hear a little bit more about our firm, you can watch Chris Layton in a one-minute introduction video. We know you have choices. We hope you choose Layton Law.

Bankruptcy And Keeping Your Home

If you are considering filing bankruptcy with the goal of keeping your home, there is good news. There are numerous ways in which you can keep a home in bankruptcy even when you have equity in that home. You can also prevent a foreclosure with a Chapter 13 bankruptcy, and we have written more extensively about that in our article Emergency Bankruptcy To Stop Foreclosure.

The Homestead Exemption

Under N.C. Gen. Stat. sec. 1C-1601(a)(1), you can exempt up to $35,000.00 in equity of any real or personal property used as a residence. If you own the property with your spouse, this amount doubles to $70,000.00. Your equity is generally calculated as your fair market value minus obligations (mortgages). While there are costs of sale to be considered as well, the bankruptcy court is most interested in the sales value minus the amounts owed on the mortgage(s).

As part of pre-bankruptcy planning, you will want to have a real estate broker give you a written opinion as to what they think your home would sell for. Most real estate agents provide this service free of charge, and it will be used as evidence as to the value of the home, when the bankruptcy case is filed.

Tenancy By The Entirety

Another way for keeping your home in bankruptcy is by utilizing Tenancy By The Entirety to protect your equity. You have a Tenancy By The Entirety when you purchase property in North Carolina as a married couple, and both of your names appear as Grantees on the deed. Property owned as Tenants By The Entirety is afforded an unlimited exemption except as to joint creditors of both husband and wife.

A common instance when Tenancy By The Entirety is utilized is when one spouse has the majority of debt, and is filing bankruptcy without the other spouse joining in on the filing. Provided the unsecured creditors of the filing spouse are his creditors only—and not joint creditors of both spouses—those creditors will not have access to the equity in the home in a bankruptcy filing.

Unexempt Equity In Bankruptcy

In the event you have ‘too much’ equity to protect all of it in your bankruptcy filing, you are not precluded from filing. You and your attorney will simply have to assess the amount of unexempt equity  and decide whether Chapter 7 or Chapter 13 is the right chapter for you.

If you have unexempt equity in a Chapter 7 and you want to keep your home in bankruptcy, you will need to be prepared to pay the Trustee the amount of unexempt equity, or some negotiated amount based on the unexempt equity. This is not an option for all individuals, but it is worth noting the Trustee will typically allow a six to nine month repayment period in such instances.

It is not uncommon to move forward with a Chapter 7 despite having a small amount of unexempt equity. Your bankruptcy lawyer will prepare you for the negotiation with the Trustee and make sure your expectations are in alignment with the rules of bankruptcy.

The Chapter 13 Equity Option

If you have a significant amount of unexempt equity in your home, and you are unable to pay the Trustee over a six month period, you can certainly consider filing Chapter 13. In a Chapter 13, so long as you pay the court the unexempt equity over a five year (60 month) period, you have met your burden to unsecured creditors and the home is yours to keep. We have written more about Chapter 13 payment calculations in our article How Much Will My Chapter 13 Payment Be? Your unexempt equity is only one factor which will ultimately determine your monthly Chapter 13 payment.

Speak With A Bankruptcy Lawyer Today

If you are considering filing bankruptcy and you are concerned with whether you will be able to keep your home, we’re here to help. You can call us at 704.749.7747, or click HERE for a free consultation. If you’d like to meet Chris Layton, you can watch a one minute introduction video to see if you might want to work with us. We know you have choices. We hope you choose Layton Law.

How Does Debt Settlement Affect Your Credit?

Yes, settling debt will affect your credit score. Before deciding to settle a debt, you should consider the pros and cons. Once you have a clear understanding of how settling debt will affect your credit score, you can make a decision.

After weighing the options, most of our clients still decide to move forward with settling their debts, as compared to not settling them. Additionally, many clients who thought they wanted to settle debts decide instead to file bankruptcy, as the cost savings outweigh the credit concerns. We are here to provide guidance and help you make a decision that will remove the threat of creditors and provide you with financial peace of mind and prosperity as you move forward.

Debt Settlement Or Not Paying At All

From a credit perspective, settling debt is more favorable than not paying on the debt. While the settled debt will appear as a zero balance on your credit report, a settled debt is still a negative on your credit report as compared to paying the debt in full. Alternatively, a settled debt is better for your credit report than a debt that has been ignored and not paid on time.

Prior to settling a debt, most clients have a record of late or missed payments associated with the debt. For settled debts, if you were late on payments prior to settling the debt, that credit history with the settled debt will remain on your credit report for seven years from the original delinquency date. This article from Experian “How To Determine An Original Delinquency Date” may help.

If you had no late or missed payments prior to settling the debt, the settled debt will remain on your credit report for seven years from the date of settlement.

The Cost Of Not Settling

While credit score concerns are valid, part of our job is to help clients clearly see the future ahead. We have been trained our entire lives to fret over our credit score, and for good reason. It’s difficult to buy a house without good credit. Interest rates on unsecured debt and vehicle loans are high when your credit score is low. Lastly, there is a part of us that believes our credit score will never ‘bounce back’ from negative credit reporting. This is simply not true. Your payment history is the most important factor in determining your credit score. If you make payments on time after settling your debts, you can routinely qualify for great credit options within two years of bankruptcy or debt settlement.

Creditors may pursue you for unpaid debts by phone and mail for quite some time. However, things can escalate quickly. An unsecured creditor can take legal action against you by filing a lawsuit for repayment of the debt. Their primary goal in doing so is to establish the validity of the debt and obtain a judgment. Debts that have gone to judgment entitle the creditor to more remedies under the law. These remedies include seizure of assets under a Writ of Execution and forcing the judgement to be paid as part of the sale of real estate.

The Benefits Of Settling

If the debt you wish to settle is valid, other factors need to be considered in addition to how debt settlement affects your credit. Debts can typically be settled for pennies on the dollar if your debt settlement attorney has a strategy for encouraging the creditor to compromise their balance in favor of a lump sum payment. Once settled, the debt no longer poses a constant threat of legal action against you, and your credit starts to recover. The lender stops reporting missed and late payments, and additional fees and penalties are no longer a part of everyday life.

One last concern is your debt to income ratio, which also affects your credit. By settling a debt, your debt to income ratio improves from a credit perspective. Your income hasn’t increased, but your debt has decreased. This makes you a much better credit risk for future lenders and creditors. This is true whether you’re trying to obtain a mortgage or a simple unsecured credit card.

Speak With A Charlotte Debt Settlement Lawyer Today

If you are considering settling a debt and asking yourself “How does debt settlement affect your credit,” you deserve to understand all your options. Sometimes, just one phone call is all it takes to discover you have more control over the situation than you thought.

If you would like to speak with a debt settlement attorney, call us at 704.749.7747 or click HERE to request a phone consultation. Consultations are free and answering questions is part of our job. We are here to help.

Top 10 Reasons To File Bankruptcy

On the fence about filing bankruptcy? Perhaps these bullet points will help clarify a few aspects of a bankruptcy filing. If a free consultation would help, please request one—we would love to speak with you.

There is a lot of information on the internet. Unfortunately, myths and negative stereotypes can perpetuate a fear around a subject like bankruptcy. The real cost to this is that people who desperately need and deserve it, may not get the head start that bankruptcy provides. We hope the list below helps you make a decision about your finances.

  1. Your financial and emotional well-being are worth more than anything else. When you file bankruptcy, you are restored to a place of sanity. This is true both financially and mentally. Not only will your bank account bounce back, but you will bounce back as an individual. You will feel hope again, and see a bright future ahead for yourself and your family.
  2. You deserve freedom from the chains of unsecured debt. Unsecured debt (credit cards, medical bills, etc.) is debt you owe individually, but which is not attached to your property. As that debt accumulates, the monthly carrying cost of that debt eats into even the most significant income. The result is you end up paying excessive fees and penalties on debt which continues to grow. Bankruptcy allows you to stop moving backward, and immediately leap forward.
  3. You will feel like you’ve been given a raise. We’ve written more extensively about this HERE. When you eliminate the burden of hundreds of dollars a month going to unsecured creditors, it feels like you’ve been given a promotion at work, complete with an increase in pay. All of the sudden, you have money for normal things again—healthcare, car repairs, family outings, and gifts for friends and loved ones.
  4. You can save your home with bankruptcy. By filing Chapter 7 you can relieve yourself of the burden of paying unsecured debt, which allows you to focus on your mortgage. Or, if you’re facing foreclosure, you can file Chapter 13 to force the lender to give you time to catch up on your mortgage payments.
  5. Old tax debt will be addressed. The rules regarding tax debt require an analysis of each particular case; however, there are a few general rules. If your tax debt is three years old or older, and you filed your tax returns on time, bankruptcy will eliminate that tax debt. If your tax debt is more recent than three years old, you can still choose to file a Chapter 13 and pay the debt on a 5 year plan instead of being forced to repay at the IRS or Depart of Revenue’s pace.
  6. You can keep your car and home in bankruptcy. Our firm will analyze your finances with you, and help you determine If you can file bankruptcy and keep your home and cars. This depends on the available bankruptcy exemptions. In almost all cases, our clients are able to do so. In cases where a vehicle loan is older than three years old and the car is worth less than the loan balance, there may even be an option to ‘strip’ the additional loan balance through bankruptcy. This means bankruptcy allows you to keep the car, and only pay on the debt to the extent of the blue book value of the car.
  7. The process is easy. Our firm will help you gather the documentation you need in order to file a successful bankruptcy. The filing is done electronically through the federal bankruptcy court website, and you will attend one hearing with your attorney. There are rarely surprises, and most hearings take five minutes or less. That’s it. Five minutes answering basic questions about assets and income.
  8. Nobody else will know about it. Well, for the most part. The fact is, the bankruptcy filing is public record. However, even attorneys have to perform a special search at the courthouse or have electronic access to the bankruptcy court records in order to find out if you have filed bankruptcy. Unless they are creditors, or you are co-debtors together, your friends, family and neighbors have no reason to know you filed.
  9. Your credit score will recover much faster than you think. We have written extensively about credit scores over the years. We have also stayed in touch with our clients after bankruptcy. We are amazed and pleased at the stories our clients tell us after bankruptcy. Clients leave the bankruptcy hearing excited to start a new financial life. Six months to a year later, they report back to us how wonderfully things are going for them. Quite often, two years after filing, they call our office to tell us they are buying a new home and their mortgage broker needs one document from us. Your life after bankruptcy is exciting again.
  10. It is a smart ‘business’ decision. Setting your emotions aside and making the smartest financial decision for yourself and your family will change your life. View it as a financial decision. Your bankruptcy filing is an investment in yourself and your family. And it is one that begins to pay off immediately.

Speak With A Charlotte Bankruptcy Lawyer Today

If you would like to speak with a bankruptcy lawyer who cares about your financial future, call us. You can reach us at 704.749.7747. Or, you can click HERE for a free consultation—just tell us when you would like us to reach out to you. With each step you take, you are one step closer to financial freedom.

Debt Consolidation For Credit Cards

If you are considering debt consolidation for credit cards, you need to read this blog post. First, it is important to know there are a few ways to consolidate your credit card debt. Each program being offered will be different. In any case, first, we will quickly go over the different types of debt consolidation, and then discuss a few pitfalls and other options.

Types Of Credit Card Debt Consolidation

Balance Transfer – When you do a balance transfer you are essentially transferring several credit card balances to one credit card. It could be due to a low introductory rate, or some other special terms, which are more favorable than the prior card or cards.

Debt Consolidation Loan – Some banks will offer you a loan that you can use to pay off your credit card debts. You will be left with one balance on the loan, and usually at a lower interest rate than the credit cards you paid off.

Debt Management Program – This is the most traditional form of debt consolidation. In this instance, you work with a credit management company. They establish a payment structure for you and a timeframe. The credit management company negotiates with your creditors to lower your balances. Usually, the negotiated amount is contingent upon you completing the consolidation plan.

Three Common Pitfalls To Credit Card Debt Consolidation

Fees And Costs – Whether the fees come in the form of high interest or third-party fees charged by your credit card management company, it is important to understand what fees you are being charged. The lengthy contracts consolidation companies provide you with can be difficult to sort through. The point is you are paying for a service. You are entitled to know how much the service is costing you. This way, you can comparison shop and set your bottom line for how much it is costing to eliminate your debt.

Dropping Out Of The Consolidation Program –

Many debt consolidation agreements are contingent upon your completion of the term. The term may be for three or more years. During that timeframe, anything could happen which might prevent you from being able to make your payment on time. You want to be aware of the penalty for late or missed payments, and get confirmation that you will not lose the progress you made along the way by making consistent on-time payments in the program.

Worrying Too Much About Your Credit Score –

It is important to be concerned about your credit score. You should think carefully before spending thousands of additional dollars for the sole purpose of sparing a few credit score points. As a bankruptcy attorney, I speak with clients every day who are worried about their credit score. I do my best to help them see the full picture. Often, those clients already have a reliable vehicle and own a home. If that is the case, I encourage them to look at the upside to eliminating the debt—no matter how they choose to do it—instead of obsessing over how it will affect their credit score.

What Other Options Are There?

Bankruptcy is worth considering. Both Chapter 13 and Chapter 7 are options in consumer bankruptcy. Every bankruptcy attorney I know in Charlotte, North Carolina will give you an honest answer as to whether you should file bankruptcy or not. This means you should consider having a free consultation with a bankruptcy lawyer to make sure you understand the cost of bankruptcy versus the cost of debt consolidation. If a client can eliminate $25,000 of unsecured debt by filing bankruptcy for under $3,000, it is going to be difficult to justify a debt consolidation program that charges $525 a month for 36 months.

Debt settlement is another option. Because we are a bankruptcy law firm, we obtain good results for clients attempting to settle the debt. When you are settling a debt with a creditor, you are proposing to pay them a small portion of the debt in 90 days or less, in exchange for forgiveness of the remainder of the debt. To accomplish this, you must have access to a lump sum of money to pay the creditor. It is not uncommon to receive a dramatic reduction from the outstanding balance in exchange for timely payment of a small percentage of the debt. In a prior post, we have discussed how a debt settlement affects your credit score.

Speak With A Bankruptcy Lawyer Today

If you are considering consolidating credit card debt, you deserve to understand all your options. We would be happy to discuss bankruptcy, debt settlement, and credit card consolidation with you. Then, we can help you make the decision that will work best for you. Sometimes, just one phone call is all it takes to discover you have more control over the situation than you thought.

If you would like to speak with a bankruptcy attorney, call us at 704.749.7747 or click HERE to request a phone consultation. Consultations are free and answering questions is part of our job. We are here to help.

Does Bankruptcy Ruin Your Credit?

No, bankruptcy does not ruin your credit. In fact, bankruptcy may ultimately be the reason you are finally able to restore your credit. We understand your credit score is an important factor in deciding whether to file bankruptcy. While the initial filing of a bankruptcy will temporarily lower your credit score, most debtors find that their score recovers within a year from filing bankruptcy.

Your Debt To Income Ratio

One important aspect of your credit score is your debt to income ratio. The filing of bankruptcy changes your debt to income ratio in your favor. This immediately serves to help you rebuild your credit. Additionally, as a result of your bankruptcy, your credit report will show fewer debts. You become an attractive client to creditors when your debt to income ratio is healthy. This means you will be considered for credit cards, automobile loans, and other extensions of credit.

How Quickly After Bankruptcy Will My Credit Score Recover?

Most of our clients tell us that their credit score bounces back at the one-year mark from filing bankruptcy. However, this will fluctuate depending upon how high your score was before filing bankruptcy, and depending upon the steps you take to rebuild your credit after bankruptcy. If you are making payments on a secured credit card or a vehicle after bankruptcy, those positive payment reports will serve your credit score well.

Free Yourself From The Chains Of Credit Card Debt

Credit card companies want you to fear bankruptcy. They would rather you give them every extra penny you have, to keep them from taking further action against you for non-payment. This is true regardless of whether your monthly payment to them makes even the slightest dent in the balance owed.

The bigger picture when deciding whether to file bankruptcy involves regaining your financial freedom. The relatively small price to pay for that financial freedom is the time it takes to rebuild your credit. When bankruptcy clients call us two years after their bankruptcy to tell us they have gotten approved for a home mortgage, they usually tell us the same thing: I never should have waited as long as I did to file my bankruptcy.

Speak With A Charlotte Bankruptcy Lawyer Today

If you have questions about how bankruptcy can help your credit, we are here to help. Once a client decides to file bankruptcy, we advise you to stop paying on any debt which will be discharged by the bankruptcy. If you would like to speak with a bankruptcy lawyer, call us at 704.749.7747 or click HERE to request a free consultation by phone or in person.

 

Should I File Bankruptcy Or Just Not Pay?

If you are overwhelmed by credit card debt or medical bills, you may be considering Chapter 7 or Chapter 13 bankruptcy. Or, you may be considering simply not paying. Here’s why bankruptcy is the best long-term approach to managing overwhelming debt.

What Can Creditors Do If I Do not Pay?

If your debt is secured by a vehicle, the creditor can repossess the vehicle. In North Carolina, this is a contractual agreement between the creditor and the vehicle owner and does not typically require court approval.

If your debt is mortgage debt or home equity line of credit debt, the lender can use the North Carolina statutory provisions under N.C.G.S. Sec. 45 to begin the foreclosure process. Essentially, if you cannot ‘catch up’ on the mortgage with the lender, your home can be sold to pay the mortgage creditor.

If your debt is unsecured debt like credit card debt or medical debt, the creditor’s primary recourse is to contact you in attempts to collect. Many unsecured creditors will use this method for months before resorting to taking legal action against you. Keep in mind, an unsecured creditor can file a lawsuit against you to prove the amount you owe, and secure a judgment. Once a creditor has a judgement against you, they can pursue your assets with the backing of the judicial system. Additionally, if you own a home, the judgement will attach to the home. This means when you sell the home the judgment will need to be paid in most cases.

Creditors And The Writ Of Execution

Once a creditor obtains a judgment, they can file a writ of execution with the sheriff to pursue your assets. This includes your home, vehicles, cash in bank accounts, etc. For the most part, you can protect the same property you would be able to protect or exempt in a bankruptcy. The remainder of your property is available to the creditor. When a creditor is pursuing your assets, you may receive a Notice of Right To Claim Exemptions. This puts you on notice that you must report your assets to the creditor. It also lets you know the creditor is pursuing your assets.

Bankruptcy Stops All Collection Attempts

By filing a Chapter 7 or Chapter 13 bankruptcy, you put your creditors on notice that they are no longer allowed to attempt to collect on debts. This is a function of The Automatic Stay in bankruptcy. Additionally, you pay a fixed amount of money to your bankruptcy attorney or the bankruptcy court, in exchange for discharging the entire balance of the debt. If you have unsecured debt more than $10,000, it makes sense to consider bankruptcy. If your debt is $20,000 or more it will almost always make sense to file bankruptcy as compared to attempting to pay the debt.

We have written many articles about using bankruptcy to stop a foreclosure and recover if you are behind on mortgage payments. We hope those are helpful.

Speak With A Charlotte Bankruptcy Lawyer Today

If you have questions about whether to stop paying on debt, we are here to help. Once a client decides to file bankruptcy, we advise you stop paying on any debt which will be discharged by the bankruptcy. If you would like to speak with a bankruptcy lawyer, call us at 704.749.7747 or click HERE to request a free consultation by phone or in person.

 

What Does Bankruptcy Cover?

A consumer bankruptcy comes in the form of Chapter 7 or Chapter 13. The goal of both bankruptcy filings is to obtain a Discharge. The discharge is your confirmation that the debts included in the bankruptcy filing are no longer your responsibility, and that creditors can no longer pursue you or your assets to try to collect on those obligations.

There are several types of debt which receive specific treatment in bankruptcy. Below, we will cover a few broad categories in hopes of giving you and understanding of what is covered when you choose to file bankruptcy.

Unsecured Debt – Unsecured debt is generally credit card debt, medical bills, and personal loans. Essentially, it is debt which is not secured by a specific piece of property. Unsecured debt is discharged in a Chapter 7. In Chapter 13, you may pay a small percentage to your unsecured creditors by way of your Chapter 13 plan. Then, when you make your final payment in Chapter 13, the remainder of that unsecured debt will be discharged.

Secured Debt – Secured debt is debt which is secured by property. Generally, this means that if you stop paying on the debt the creditor has the right to take the property. An example would be a home or a vehicle. In North Carolina, a home can be foreclosed upon if you stop paying debt. A vehicle can be repossessed. Again, this just means the lender’s loan is secured by property. In a Chapter 7, you can keep your secured property, but the debt comes with it. For example, if you have a vehicle with a loan balance and you file Chapter 7, you will get a chance to indicate if you want to keep the car (and the debt), or if you want to surrender the car to the lender. If you surrender the car to the lender, the debt  goes with it. Your bankruptcy attorney will help you decide which decision is best for you. The terms of your loan will not change if you decide to keep the car and the debt associated with it.

In Chapter 13, you have the same options. There are many instances where your car payment will lower in Chapter 13 because Chapter 13 spreads your car payment out over the 60-month repayment period (Your Chapter 13 Plan). This can provide great financial relief as you enter Chapter 13.

Secured Debt Arrears – If you owe or are ‘behind’ on payments to secured creditors, you cannot use a Chapter 7 to cure the arrears. You will need to get caught up on payments when filing your Chapter 7. However, a Chapter 13 is specifically designed to force your lender to allow you some time to get caught up on late payments. In fact, the amount you are behind on the day you file your Chapter 13 will be divided over the 60-month length of the plan. This gives you time to make your normal payment each month, while slowing getting caught up. When you finish your Chapter 13 plan, you will be caught up on your payments to the mortgage lender or vehicle lender.

Priority Debt – Some debt like tax debt or child support is categorized as priority debt. While there are exceptions, generally tax debt and child support debt are not discharged by Chapter 7. One exception relates to taxes which were filed at least 240 days before the bankruptcy, and which are at least 3 years old at the time of the filing.

In Chapter 13, priority debt like taxes or child support, must be paid in full over the life of the Chapter 13 plan. Assume you are behind $6,000 on taxes when you file your Chapter 13. Further assume the tax debt is less than 3 years old, which means it needs to be paid in full during the Chapter 13. With some exception, the tax debt will come to $100/month in your Chapter 13 plan. This can be a very manageable amount compared to what the IRS or NC DOR will offer you outside of bankruptcy.

You can still file a successful Chapter7 with priority debt; however, when you receive your discharge, the priority debt (except taxes older than 3 years old, etc.) will still exist. Some clients find that to be an OK solution—without the other unsecured debt burden, those clients can make payments on the priority debt which survives the bankruptcy.

Student Loans –Unfortunately, student loans are not discharged in bankruptcy except in the most limited circumstances. We are hopeful the rules on discharging student loans will change; however, our firm has litigated student loan issues in the past and the law is relatively settled now. We are happy to discuss it with you before you move forward with bankruptcy. The great news is that our clients with a good bit of student loan debt choose to move forward with bankruptcy despite the rules around student loans. Those clients find that once the bankruptcy closes out and the burden from their pre-bankruptcy debt is relieved, they are easily able to make their student loan payments, apply for income-based repayment, or use a forbearance.

Speak With A Bankruptcy Lawyer Today

If you would like more information about what is covered in bankruptcy, reach out to us. We love to help educate consumers, and we can help you understand your options. You can reach us at 704.749.7747 or click HERE to request a consultation via email. We are here to help.