Yesterday I wrote a post on how your Chapter 13 payment is determined. This morning I reread the post and thought to myself….hmmm would I understand that if I was looking at filing a Chapter 13 bankruptcy case? Don't get me wrong, the post is full of great information that you need to know. At the same time, you get to the end of the post and still have no idea how much you are going to have to pay. So, I thought I would write a second post and provide you with some examples of how all the legal mumbo jumbo works in the real world. For this example I am going to use a chapter 13 bankruptcy case that is going to be filed in Tuscaloosa, Alabama. I will name the Debtor Susan since I want to talk to you about other options for Susan in other posts. Susan is single, brings home $2400 a month after taxes and insurance, owns a home and is 4 months behind on her payments, and owns a car that she bought, new, in 2005. The home is worth $100,000 and she has a first and second mortgage on the home. The first mortgage is $110,000 and the second is $20,000. Both mortgages are behind 4 months. The car loan is current but the car is only worth $3000 and she still owes $7000 on it. The Debtor wants to keep her home and car but is struggling with medical bills and credit card debt that total about $50,000. So, how can I help her?
After the Debtor pays her basic living expenses (utilities, food, gas for her car (but not the car payment), clothing, and her regular 1st mortgage payment) she has $400.00 left to pay everything she owes. Obviously the amount of money won't come close to covering the rest of her bills. She is losing sleep and is desperate to find some solution. Like most of us she is embarrassed about her situation and wants to pay her bills. The reality is that she can't pay them on what she makes and she has been unable to take on a second job because she has to help care for her elderly mother who lives with her.
Saving the Home from Foreclosure
The Debtor can make her regular house payment of $800 a month on the first mortgage but she can't come up with a lump sum to cure the the months she is behind. With legal fees, foreclosure costs, and late fees, she would need almost $5,000 to cure the arrearage and get the mortgage back in good standing.
Curing the Arrearage and Stripping Off the Second Mortgage
In a Chapter 13 bankruptcy case, I can help the Debtor save her home. First, I will strip off the second mortgage and treat that as an unsecured claim. That means the Debtor will not have to make the regular payment on the second mortgage and it will be paid the same percentage that her credit cards and medical providers receive. Second, I will propose a plan that allows the Debtor to cure her first mortgage arrearage of $5,000 over 56 months. That means that she will only have to pay a total of $89.29 per month to bring her mortgage current. The Debtor doesn't have to pay interest on the arrearage in her Chapter 13 case if she undertook the mortgage after October, 1994. At the end of her 60 month case the Debtor will still have her home, her mortgage will be current, and the second mortgage will be gone.
Dealing with the Car
The Debtor owes $4000 more on her car than it is worth. How many of you know that feeling? The Debtor has owned the car since 2005 and it is still in very good shape with low mileage. In her Chapter 13 case, I will propose to pay $3,000 to the creditor at 4.25% interest over 56 months. The Debtor's car payment will now be $59.15 per month instead of the $350 she was paying on the loan. The $4,000 left owed on the loan will be treated as an unsecured claim and will receive the same percentage as her credit cards and medical bills. And, it will be discharged (wiped out) at the end of her case.
So how much is the Debtor's Monthly Chapter 13 payment?
The Debtor will pay $400 per month to cover the arrearage owed on her home, payoff her car, and discharge the unsecured debt she owes including the second mortgage, the $4000 owed on the car that was stripped down to an unsecured debt, her medical and credit card bills. In addition, the $400 a month will pay the bankruptcy court filing fee, the compensation due to the Chapter 13 trustee, and the balance owed on her attorney fees.
Suddenly a seemingly hopeless situation has turned into a dream come true. The Debtor has saved her home, reduced the amount she owed on the home and car, and found a way to get rid of her credit card debt and medical bills.
Could you benefit from this type of help? If your answer is yes, just pick up the phone or use the contact form on the website to schedule a free consultation. Help is available. All you need to do to get that help is schedule a free consultation. So, why not start on the road to a better, debt free life?