Facing Foreclosure in Florida?

Speak with a Florida Chapter 13 Bankruptcy Attorney

Chapter 13 Bankruptcy provides a method for repaying a percentage of your debts, interest free, over a period of time based upon, generally speaking, your ability to pay. With the help of a foreclosure defense lawyer, a Chapter 13 allows you to stop foreclosures, catch up on past due mortgage payments, restructure your car loan and pay off your other debts according to a court approved plan of reorganization. In most cases, your monthly payments will be dramatically reduced and your outlook vastly improved.

Chapter 13 "reorganization" is a powerful tool that we may rely upon to assist in our overall analysis of a client's facts & circumstances surrounding troubled mortgages. If a client would like to try and keep a home after they have fallen behind on their mortgage, a Chapter 13 will stop any foreclosure lawsuit and allow the homeowner / borrower to keep the home provided that they can make their payments to the Chapter 13 Trustee.

Alternatively, a Chapter 13 is also a powerful tool that will allow a client to surrender their real estate in satisfaction of the secured debt (i.e., the mortgage). Many times, due to the complexity and time required to sell the home off of the court house steps, a deficiency claim (i.e., the amount left owing to the bank AFTER the home is sold) is never liquidated in time to file a proof of claim in a debtor's Chapter 13 plan. In such case, the debt or deficiency is ultimately discharged and no money is repaid! Even if the bank is able to sell the home quickly and file a claim, the total amount of the deficiency is rarely, if ever, paid back. Instead, the borrower / debtor pay the bank pennies on the dollar, interest free, just as they do their other unsecured debts.

Deficiency from Foreclosure.

In a depressed real estate market, when a mortgage goes into default and is ultimately foreclosure, typically there may be a deficiency that remains after the home is sold and set off against the amount of the loans. In other words, it is the amount of money still owed to the bank after they take into account the money they received from the sale of the home. In the end, the Chapter 13 is a power tool both to save homes as well as eliminate or greatly reduce the deficiency that will likely result from the surrender and foreclosure of homes in a depressed real estate market.

Is Chapter 13 Bankruptcy for me?

Generally speaking, you do not choose what type of bankruptcy that you want to file – instead you quality for one.

The Bankruptcy Code requires that an individual whose household income is above the median income for a similar sized household in their county engage in the "long-from" disposable median income test to determine if he or she has sufficient monies to make reasonable ends meet and then have disposable income left over to pay a portion of their unsecured debts back interest free over a five year period of time. In other words, you need to have a regular and stable source of income that gives you enough disposable income (i.e., left over income) in order to fund a plan payment after you've paid your basic, necessary and reasonable living expenses to have some funds available to pay into the Chapter 13 Trustee every month.

There's no set formula for calculating disposable income -- every case is different based upon your individual facts and circumstances -- we will help you figure that out. Chapter 13 can be a very viable solution to your debt problems and while it is a more complicated case due to the reorganization and repayment of the debt over a period of time, it is a very effective and useful tool to help resolve difficult debt issues.

Why would I file a Chapter 13?

  • Save-a-Home. You are behind on mortgage or auto payments and you want to want to keep those assets. A Chapter 13 will allow you to get current provided you complete the plan successfully.
  • Taxes. If you have tax debts, sometimes they may be very difficult to discharge in a Chapter 7 case. A Chapter 13, however, will allow you to pay the taxes back over the life of the plan while protecting you from wage and bank account garnishments.
  • Best Interests of the Creditors. In the situation where you would have some assets liquidated in a Chapter 7 case (i.e., non-exempt assets) and you'd like to keep those assets but still get the protection from your creditors that a bankruptcy would provide a Chapter 13 would allow you to keep those assets if it is structured correctly.
  • Time Barred. If you have filed a Chapter 7 within the prior 8 years you cannot file another case until the 8 year period has expired. A Chapter 13 filing can protect you and your assets from the collection efforts of your creditors.
  • Student Loans. While you can't discharge student loans or certain types of taxes in a Chapter 7 case, you can consolidate those debts in a Chapter 13 and put them into a manageable repayment plan.
  • Protect Co-Signors. You may have co-signers on debts that you want to protect so your creditors do not attempt to recover from them. If you had a friend, spouse, ex-spouse, or relative co-sign for you on a debt your creditor would be paid through the Chapter 13 plan and the co-signer will be completely protected.
  • Disposable Income. As previously discussed, you may simply have too much income to qualify for a Chapter 7 case or you perhaps would rather repay the debt. A Chapter 13 would allow you to do that without having your back against the wall. We can devise a plan that is simple and, most of all, workable for you.

Chapter 13 vs. Debt Consolidation

Debt Consolidation is a debt workout program that is willingly negotiated outside of the courts. In short, debt consolidation is an agreement entered into between the creditor and the debtor to pay back 100% of the debt owed at terms different (and slightly more advantageous) than the controlling terms. Typically, the debt consolidation company will first gather the information regarding your debts, namely the accounts, the numbers, balances, the interest rates, due dates, etc. Next, the debt consolidation company will contact your creditors on your behalf and attempt to negotiate better terms through either lower monthly payments and / or lower interest rates on the balance owed.

Sounds good! Why would I want to consider a Chapter 13 bankruptcy OVER doing debt
consolidation? Good question….and there are several answers why a Chapter 13 is BETTER than debt consolidation. They are:

  • Percentage of Debt Repaid. In a Debt Consolidation plan, you will in all likelihood be paying back 100% of your debt – you're paying it all back! In a Chapter 13, most of the time you will be paying back LESS THAN 100% of your debt….and many times much less!
  • Interest Rate. In a Debt Consolidation plan, you will typically have a reduced interest but will still be paying back some interest on your entire balance. In a Chapter 13, your interest rate is 0%. Nothing. You will not have to pay any interest, late fees, collection fees or continuing court costs in a chapter 13.
  • Length of time in repayment "plan." Debt Consolidation plans are typically longer than Five years because you are paying 100% of the debt back plus some minor interest rate. In Chapter 13, however, you are in the plan for either three (3) or five (5) years depending on whether your household income is below or above the median income for a similar sized household.
  • Success rate. Historically, both plans are tough to successfully complete. Why? With Debt Consolidation, not all creditors participate in the debt consolidation plan. Because not all creditors participate, your cash flow was be sapped by the creditors that do not participate, thereby not leaving enough money to pay the consolidated debt payment. Under this scenario, the likelihood of harassing creditor calls or litigation against you is higher.

    On the other hand, Chapter 13s, while still tough, are more likely to succeed for a few reasons. One, ALL creditors MUST participate – they cannot "opt" out. The federal law requires that they participate or they are discharged without having any money paid on their claim. Two, because you are typically paying a percentage of the overall debt owed in a Chapter 13, it is easier to make your payments compared to paying all of your debt back in a debt consolidation plan. Therefore, Chapter 13s are more likely to be successfully completed. Three, you are not paying any interest on your unsecured debt (i.e., credit cards). Again, more of your money is going to pay your principal and less (or none!) to interest, your money is working harder to get you debt free.
  • Relative blemish to credit score. One of the greatest hesitations in filing a bankruptcy involves the "myth" that bankruptcy will kill your financial future. In reality, if the proper facts and circumstances are present in an individual's life, this belief could not be farther from the truth.

Debt consolidation will negatively affect your creditor score. Typically, before entering into a plan, most debtors have been or continue to be past due on their monthly payments. This will negatively affect your FICO or Beacon score. Furthermore, once you enter into the debt consolidation plan, the credit reporting agencies will negatively report on your credit unless you make every payment on time.

Chapter 13 will negatively impact your credit score in the beginning. Typically, a chapter 13 will be reported on your credit for approximately two years after the filing of your petition. And depending upon how late you were on your payments prior to selecting debt consolidation or chapter 13, the chapter 13 filing could be a deeper blemish in the short term. If you successfully make you payments to the chapter 13 trustee, however, your credit score net impact may actually be positive in a shorter amount of time after a chapter 13. It is like taking one step backwards, that allows you to take three steps forward! You have a deeper blemish immediately (i.e., bankruptcy on your record) but if you make the payments on time and are debt free quicker, your credit score will climb higher faster! In other words, bankruptcy can and many, many times does help to rehabilitate someone's credit score.

Chapter 13 vs. Debt Settlement.

Debt settlement is a potentially much more damaging undertaking that individuals should be wary of and consider very carefully before entering into.

Debt settlement is a process where a company – typically not a lawyer – actually recommends that you STOP paying all your payments on your credit cards. The money that you "save" by not paying your credit cards is then placed and accumulated in an account. Once you have accumulated enough money, the debt settlement company then contacts your creditors and attempts to "settle" your debts by paying the credit card company a lump sum payment to satisfy the total amount due. Typically, you must have approximately 50% of the amount owed for a credit card company to even consider accepting the lump sum payment in full satisfaction of the account / debt. Obviously, your success of becoming debt-free will greatly depend on both how much total debt you have – this impacts the total amount you have to "save" to settle all of your accounts – as well as on your debt settlement company's negotiation skills. Lastly, and what they typically do not tell you, the debt settlement company charges a hefty fee! Out of the money that you have "saved" to settle your debts will FIRST come your debt settlements company's fee – they will take it out before they use your money to settle your accounts. This is just another hurdle that you must overcome before you can become debt free.

Chapter 13 Bankruptcy, on the other hand, is definitely a blemish on your credit score. Chapter 13, however, is many times a better, more predictable, results-oriented, certain, cost efficient way to put a strangle-hold on all of your creditors and use your money / disposable income to pay as little of your unsecured debt back as possible, interest free, over a three to five year period of time. In sum, live reasonably, pay your disposable (i.e., left over) income to a Chapter 13 Trustee to a three to five year period of time and at the end, any balances left unpaid, along with any collection fees, late fees, penalties, interest, fines, etc., are ALL discharged. The debts are gone forever never to be collected again!

Make sure you know ALL the facts before making your decision. Bankruptcy is NOT a dirty word! In fact, many times it can provide the relief needed to move on with your life. Call us today to schedule a free initial consultation.

Effect on Credit Score

Everyone who considers bankruptcy will very early in the conversation ask "what will it do to my credit score?" Rightfully so – many people have worked long and hard to establish their credit.

Chapter 13 Bankruptcy will negatively affect your credit – that is a factual statement. The degree to which it will affect your credit is hard to tell, however. It is unfortunately not a scientific formula or equation. Equifax, Trans Union and Experian all have many factors that are taken into consideration in determining what someone's FICO or Beacon Score is at any one point in time.