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
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
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.