Chapter 13 Bankruptcy Is Sometimes Misunderstood

As the smoke is still clearing from the real estate meltdown in 2007, there is still believed to have a second wave of option arms to still hit. No one knows what further damage this will do to the already saddled real estate industry. Many individuals that took out a second on their home and have recently had to face foreclosure on their house are left exposed to having the second trust deed holder come after them for the amount due. If the lender decides to, they can sell the debt to a debt collection company that will sue the debtor and get a judgment against them. Or in the least file a 1099C with the IRS to write off the debt, making the debtor responsible for income taxes on the amount written off.

If someone already lost their home it might be a good idea to file Chapter 7 bankruptcy and eliminate all the liability. To file Chapter 7 bankruptcy you must qualify under the means test which is based on the average income of the state you reside in. If you don't qualify for Chapter 7 you definitely should consider Chapter 13 bankruptcy. Most people when they think of bankruptcy they think of chapter 7. Chapter 7 is the most popular form of bankruptcy because of the short time to get a discharge and total elimination of all unsecured debts.

Chapter 13 bankruptcy is sometimes misunderstood by debtors. The reason many people are afraid of filing Chapter 13 is because of the 3 to 5 year payment plan that scares them away. Chapter 13 has many benefits, especially if you're trying to protect your property. When a debtor files Chapter 13, they can negotiate a plan of reorganization catching up on the arrears of payments included in the payment plan. If the value of the property has dropped a substantial amount, the debtor can try and strip off the second and third deeds and wipe them out as unsecured debt at the end of the payment plan. In a Chapter 13 bankruptcy, secured debts in any court ordered judgment get priority, being paid first and unsecured debts get whatever crumbs are left over. Recently, because of the housing crunch many individuals have been using Chapter 13 as a way to renegotiate their home loan. A lot of these people don't have much unsecured debt and their real problem is the house they are upside down in.

Chapter 13 basically allows the debtor to fight the foreclosure behind the shield of a court order. It forces the mortgage holder to pursue the foreclosure in the bankruptcy court and force the debtor to leave the property. The most the lender can receive is their property back and by looking at the way the current real estate market is going, it just might be in their best interest to negotiate something. For individuals that are considering filing Chapter 13 bankruptcy they will definitely need to hire a bankruptcy attorney to complete the task. It's good to hire an attorney that specializes in Chapter 13 proceedings. The bankruptcy attorney is required to negotiate with the trustee and creditors and you will want someone in your corner that will get you the best deal.