Chapter 13 bankruptcy allows people to keep their property while eventually qualifying for a discharge of their debts. They must make several years of payments through a court-approved repayment plan before they are eligible for that discharge. Typically, only unsecured debts are eligible for discharge during bankruptcy proceedings.
However, the largest debts people owe may be secured debts, such as mortgages or car loans that have collateral property attached. How does Chapter 13 bankruptcy help with debts that a filer cannot discharge?
Repayment plan negotiations can lead to modifications
People filing for Chapter 13 bankruptcy must present the court with a suggested repayment plan. They propose a plan in which they intend to repay much of what they owed to their creditors by making monthly payments through the courts.
That payment may actually be substantially lower than the combined minimum payments for all of the debts on their own. Filers can also request modifications to make their existing loans more manageable.
Mortgage and car loan modifications can lock in lower interest rates. They can reduce monthly payment amounts and increase the number of total payments to extend the repayment period, thereby diminishing what the debtor pays each month.
Reducing the amount paid monthly for secured debts can help people remain in good standing on their mortgages and car loans. The eventual discharge of other debts can also help people rework their budgets and stay up to date on their secured debts after bankruptcy.
Working with an attorney while preparing for Chapter 13 bankruptcy can help people develop realistic repayment plans and negotiate with their lenders for loan modifications. Filers with proper support can protect their most valuable resources and set themselves up for a sustainable financial future.