How To Redeem Property In Chapter 13? In Chapter 13 bankruptcy, you can keep all your assets. But that doesn’t mean you don’t have to pay for a part. You are allowed to protect, or “exempt” a certain amount of equity that you need to maintain a home and a job. If you want to keep non-exempt property, such as a boat, a collection of baseball cards, or another luxury item, you must pay for it through your Chapter 13 subscription.
How to File Chapter 13 Bankruptcy
Also, if you want to keep a house, car, or other property for which you are still paying, and you offer the property as collateral (you have agreed that the creditor can repossess it if you do not make the payment), you must you can continue to make your payments and pay any arrears on time.
How To Redeem Property In Chapter 13?
As a bankruptcy attorney in northeast Florida, this issue comes up every day. In Chapter 13 cases, many debtors are faced with the problem of reaffirming the debt, surrendering property as collateral for the debt, or rolling the dice and paying off the debt without reaffirming the loan. The decision usually comes with motor vehicles and household items.
In many cases, the debtor is asked to reconfirm a car loan that exceeds the value of the vehicle. Sometimes that deductible is significant and the debtor struggles between not owning a vehicle, having excessive debt on a vehicle, or hoping to find post-bankruptcy financing for a new vehicle. If the debtor(s) reaffirm the debt, the debtor(s) will remain personally liable for the debt even after bankruptcy. If the loan defaults after bankruptcy, the creditor can go after the debtor for a bad balance if he is forced to repossess the vehicle.
Redemption allows the debtor to purchase the vehicle at fair market value to the creditor currently financing the vehicle. The only drawback is that the debtor has to pay a lump sum to repay the collateral before closing the bankruptcy.
Most debtors do not have access to resources that allow them to make these types of payments; however, there is a growing trend in commercial industries to extend lines of credit to borrowers and use the vehicle or real estate as collateral for the loan after bankruptcy. Of course, the debtor must be approved for financing and it may seem counterintuitive that the debtor would apply for a car loan while bankruptcy is pending, but it could reduce the amount owed by thousands of dollars and significantly reduce the debtor’s debt.
In Chapter 13 cases, the debtor can “write off” the value of the loan to the value of the vehicle at a significantly lower interest rate. There are some qualifying measures to consider before taking action in bankruptcy court. Consult an experienced bankruptcy attorney about the redemption process and the overcrowding of your vehicle and other household assets in bankruptcy.
Why Keeping Property in Chapter 13 Might Cost You?
No one will sell any of their property in Chapter 13 bankruptcy. But that doesn’t mean you get something for nothing. These are the rules.
If all your property is exempt, you can keep it penalty-free. However, if you are not exempt, you must pay it. So how do you know if you have exempt or non-exempt property?
Your state decides what real estate you need for a fresh start in bankruptcy (some states allow you to choose between state and federal exemptions). You can keep exempt property for free, regardless of the type of bankruptcy you file.
However, what happens to your non-exempt home, the home that is not covered by an exemption, depends on the bankruptcy chapter.
- Chapter 7 bankruptcy. The Chapter 7 trustee will liquidate (sell) your non-exempt property and use the proceeds to pay off your unsecured debts.
- Chapter 13 bankruptcy. The Chapter 13 trustee will not sell your non-exempt property. Instead, you pay the value of non-exempt property to your unsecured creditors through your payment plan.
Non-exempt property can increase your Chapter 13 plan payment
In your Chapter 13 plan, you must pay certain debts in full. These include delinquent mortgages and priority debts such as certain taxes. However, the amount you pay to your general unsecured creditors (such as credit card companies) depends on your income, expenses, and non-exempt properties. Specifically, you must pay all of your disposable income, which is the amount left over after deducting allowable living expenses.
However, there is more. If you have non-exempt assets, you must pay your disposable income or an amount equal to the value of your non-exempt assets, whichever is greater. So while you can keep your non-exempt assets, you may have to pay a higher dividend to unsecured creditors through your payment plan.
Having a large number of non-exempt assets can prevent you from filing for Chapter 13 bankruptcy if your income isn’t enough to meet the required payment.
You must stay on top of loan payments to keep a house, car, or other collateral
If you want to keep property that you pledged as collateral for a loan, such as your house or car, you must continue to pay during Chapter 13. Otherwise, your mortgage lender or car borrower can ask the court to lift the automatic suspension. Stay, the order that prevents your creditors from collecting against you, and if successful, start or resume execution or seizure.
Whether you can afford your monthly mortgage or car payment outside of your plan is up to your court. For example, some require you to pay through the plan if you’re behind on payments when you sign up. Why is that important? Because you have to pay the trustee a percentage of all amounts paid through the plan, which could significantly increase your costs.
You Can Catch Up On Loan Payments On Your Payment Plan
One of the benefits of Chapter 13 bankruptcy that isn’t available in a Chapter 7 case is that you can catch up on payments on the secured debt. Chapter 13 bankruptcy allows you to avoid foreclosure or repossession by allowing you to spread payments over your payment plan from three to five years. While you recover your default, the automatic suspension prohibits creditors from foreclosure or repossession of your property. When your subscription ends, you will be aware of your payments.
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