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Recent Blog Posts
Escape Your Underwater Second Mortgage
If your second (or third) mortgage is not backed by any equity in your home, you can “strip” that mortgage off your home’s title.
Our last two blog posts were about using Chapter 13 “adjustment of debts” as a practical way to catch up on late mortgage payments and property taxes. You always have to get current on property taxes and virtually always have to with your primary mortgage obligation. Chapter 13 gives you the time and protection to do this.
But if you have a second or third mortgage, you might not have to catch up at all. You may be able to “strip” that mortgage from your home. If so, you also won’t have to make the monthly payments going forward. And you would likely not have to pay any more into your 3 to 5-year Chapter 13 plan than if you didn’t have that second or third mortgage. Then at the end of the plan whatever is still owed on that mortgage would be forever written off.
Keeping Your Home through Chapter 13
Chapter 13 gives you much more time to catch up on your unpaid mortgage payments. That can be reason enough choose this option.
Filing either a Chapter 7 “straight bankruptcy” case or a Chapter 13 “adjustment of debts” one stops a pending home foreclosure. And they can both prevent one from begin started. Assuming you’re behind on your mortgage and want to keep your home, whether you should file under Chapter 7 or Chapter 13 depends on how far behind you are and how much help you need in catching up.
Protection through the “Automatic Stay”
Filing either a Chapter 7 or Chapter 13 case immediately imposes the “automatic stay” on your mortgage lender, and on all your other creditors. This is the federal law which stops and prevents (“stays”) virtually all collection actions against you or your property, including a home foreclosure.
Under Chapter 7 this “automatic stay” protection only lasts a short time, usually about three months or so. And the mortgage lender can even ask the bankruptcy court to cut short that protection.
Keeping Your Home through Chapter 7
Chapter 7 usually lets you retain your home if you are current (or not too far behind) on your mortgage payments (& other home-based debts).
Whether you can keep your home when filing a Chapter 7 “straight bankruptcy” mostly depends on two questions: 1) Are you current or close to current on your mortgage and other debts against your home, and 2) Is the equity in your home protected by the applicable homestead exemption?
Today we focus on your mortgage. Upcoming blog posts will hit other possible kinds of liens against your home, and then the homestead exemption.
Chapter 7 in General
When it comes to your home, Chapter 7 is designed for more straightforward situations with your mortgage and other home-related debts.
Under Chapter 7 if you want to you can generally keep possession of the collateral that is securing any of your debts. You just need to be current or at least close to current on that secured debt.
Getting Out of Your Vehicle Lease through Chapter 13
If you are filing a Chapter 13 case for other reasons, it’s also a good opportunity to get rid of your vehicle lease if you want to do so.
Our last blog post was about how a Chapter 7 “straight bankruptcy” allows you to get out of a car or truck lease by discharging (permanently writing off) whatever liability would arise from surrendering that car or truck.
Whether you end a vehicle lease early or at the end of its term, you could still owe the lessor thousands of dollars in a combination of contractual fees. If you decide that you need to file bankruptcy, Chapter 7 is likely the cleanest and quickest option.
But you may instead need to file a Chapter 13 “adjustment of debts” case for reasons nothing to do with the vehicle lease. You may want to save your home, catch up on child or spousal support arrearage, pay income taxes while being protected from the IRS or the state, or do a “cramdown” on a separate vehicle loan, for example. These could all be good reasons, along with many others, to file a Chapter 13 case.
Getting Out of Your Vehicle Lease through Chapter 7
A vehicle lease can cost you less up-front and each month, but is in reality very expensive. Bankruptcy is your way to break the contract.
The Big Disadvantages of Vehicle Leasing
Leasing has become an attractive way of getting into a new vehicle. The reasons seem sensible. A vehicle lease often requires less money down, and the monthly payments are usually less than with a vehicle loan.
But like any deal that looks too good to be true, there’s a catch. In fact, there are several.
1. At the end of the lease term you own nothing. Pay off a vehicle loan and you have a free and clear vehicle for you to use for perhaps years more while not needing to make monthly payments. Instead, at the end of a lease you have nothing. And you have to figure out how to pay for another vehicle. So what seemed less inexpensive short-term ends up being more expensive long-term.
Keeping Your Leased Vehicle through Chapter 13
Want to keep your leased vehicle but aren’t current on the payments? File a Chapter 13 case if you can’t get current right away.
Lease “Assumption” under Chapter 7
Our last blog post was about keeping a leased vehicle by “assuming” the lease in a Chapter 7 “straight bankruptcy” case. “Assuming” a lease means formally committing to keep making the lease payments. You also commit to be legally bound by all the other terms of the lease contract. You want the lease to continue as if you had not filed bankruptcy.
Problems with “Assumption”
However, “assuming” a vehicle lease in a Chapter 7 case doesn’t work if you’re behind on lease payments and don’t have the means to catch up right away. The lease creditor (the “lessor”) may well be unwilling to let you “assume” the lease. Or it will condition your ability to do so on your immediate payment of all the arrearage. You’d be setting yourself up to being unable to “assume” the lease and losing the vehicle.
Keeping Your Leased Vehicle through Chapter 7
If current or able to get current on your vehicle lease payments, you’ll likely be able to keep that vehicle in a Chapter 7 case.
A week ago we told you about keeping your purchased vehicle in a Chapter 7 “straight bankruptcy” through a “reaffirmation agreement.” But if you’ve leased your vehicle instead of buying it on credit, then that “reaffirmation” option doesn’t apply to you.
But if you do want and need to keep your leased vehicle, you will likely be able to do so under either the Chapter 7 or Chapter 13 procedures. Today we tell you about how this works under Chapter 7. Tomorrow we’ll get into Chapter 13 “adjustment of debts.”
Offering to “Assume” the Vehicle Lease
When you file a Chapter 7 case, you formally inform your vehicle lease creditor (the “lessor”) that you want to keep the vehicle by completing a form called the “Statement of Intention.” On that form you check the box saying that you want to “assume” the unexpired personal property lease.
Getting Out of Your Vehicle Loan through Bankruptcy
Keeping a vehicle and its debt is sometimes not the best option. Chapter 7 and Chapter 13 can both give you a safe way out.
The last two blog posts have been about ways of dealing with your vehicle loan that enable you to keep the vehicle. Chapter 7 “straight bankruptcy” usually allows you to enter into a “reaffirmation agreement,” making you continue to be liable on your vehicle loan in return for being able to keep the vehicle. Chapter 13 “adjustment of debts” can give you more time to catch up if you’re behind and, if you qualify for “cramdown,” may reduce your monthly payments and reduce the total amount you would pay for your vehicle.
But it’s very important to recognize that bankruptcy also gives you an extraordinary opportunity to get out of your vehicle contract and its debt. Even if at first you really believe that you should keep your vehicle, it’s often worth reconsidering this.
Lowering Your Vehicle Loan Payments through Chapter 13 Bankruptcy
“Cramdown” of your vehicle loan can solve the problems of a reaffirmation agreement by lowering payments and protecting you much better.
Our last blog post a couple days ago was about keeping your vehicle by “reaffirming” the vehicle loan under a Chapter 7 “straight bankruptcy.” We ended by stating that reaffirming a vehicle loan can lead to problems. This is especially true if you owe more on the vehicle than it’s worth. We said that a Chapter 13 case “would likely give you more flexibility... . You may even be able to do a “cramdown,” reducing your monthly payment and potentially saving you thousands of dollars on the balance.”
That’s the topic of today’s blog post.
The Problems with Chapter 7 “Reaffirmation”
If you are current on your vehicle loan, and could comfortably afford to make the payments after you got rid of all or most of your other debts, reaffirming your vehicle loan in a Chapter 7 case may be the best way to go for you. But here are some very common problems that arise.
Reaffirming Your Vehicle Loan through Chapter 7 Bankruptcy
Earlier this month we wrote about the three kinds of debts—secured, priority, and general unsecured. Today we get into secured debts, ones in which something you own secures the debt for the creditor. We start with vehicle loans. Specifically, in a Chapter 7 “straight bankruptcy” case whether you should “reaffirm” your vehicle loan in order to keep the vehicle.
The Reaffirmation Agreement
If you have loan on your vehicle, the lender is almost certainly a lienholder on your vehicle’s title. If so, and you are considering bankruptcy and want to keep your vehicle, signing a reaffirmation agreement with the lender in a Chapter 7 case is one of your options.
A reaffirmation agreement is a document, usually prepared by your vehicle lender, which you sign and is then filed at the bankruptcy court. It excludes that loan from the legal write-off—the “discharge”—that bankruptcy gives you for all or most of your debts.
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