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Maine Bankruptcy Chapter 13: Many people file Chapter 7 because they don’t understand the alternatives. My practices focuses on both Chapters (and other options), so we can determine the course that makes the most sense for you. For some people who aren’t eligible for Chapter 7 and many more who are eligible, Chapter 13 allows them to reorganize their debts in a way that saves them much more money than Chapter 7 would.Chapter 13 is for “wage earners,” or people with a regular source of income. In Chapter 13, you repay your creditors what you can afford over 3 to 5 years. In many ways, it is the perfect alternative to both debt consolidation, where creditors tell you the minimum they will accept, and debt settlement, where you have to pay a lump sum immediately and deal with potential tax consequences. Chapter 13 also allows you to pay back the excess value of any property you want to keep, but could not protect in Chapter 7. You won’t be forced to repay more than you can afford because you create a budget that can include things like food, clothing, home maintenance, and even things like pet care, smoking, recreation, and savings. In many cases, credit card companies receive 5% or less over 5 years, with the rest being discharged without tax consequences.Chapter 13 is usually the best choice if you have recent income tax debt. The IRS will consider “offers in compromise” outside of bankruptcy, but generally expects you to liquidate nonessential assets and propose a repayment plan of around 5 years. In Chapter 13, you can discharge most penalties, and freeze the interest- you have up to 5 years to repay the debt owed, including interest as of the date you filed.
The tax authoritiesmay assess some interest, but cannot seek payment until your case is complete. In Chapter 13, you can often “strip off” a second mortgage loan if your house is valued at less than what is owed on the first mortgage, and treat the second mortgage like a credit card, often discharging 95% or more of the debt. You can also “cure” a first mortgage up until the date of a foreclosure sale, by repaying the amount you are behind over 3-5 years. Chapter 13 also allows you to “cramdown” certain secured debts to the value of the property they are attached to. If you bought your car more than 2 ½ years before you file, you can repay the value, plus 5-6% interest, over up to 5 years. You can also repay the value of business equipment or other property purchased more than 1 year before you file.You can also get caught up on child support or alimony over time without having to appear in divorce court, or even pay less than 100% if you stay in Chapter 13 a full 5 years (the remainder is not discharged). For nonsupport divisions of property, those court ordered obligations can be discharged in Chapter 13, but not in Chapter 7. Courts are also more lenient with regards to efforts to prevent discharge of debts due to fraud or personal injury, when you are in Chapter 13.In most cases, a Chapter 13 plan will involve a payment that is several hundred dollars less each month than you would have paid had you filed Chapter 7 and reaffirmed your car and house loans! Chapter 13 is actually much cheaper than Chapter 7 for most people with car loans, a second mortgage, divorce obligations, or tax debt.There is no income cap on eligibility for Chapter 13, but you must have a source of income, have less than $360,475 in unsecured debt (credit cards, medical bills, most taxes) and less than $1,081,400 in secured debts. You also must have regular income and commit to a 3+ year plan. Chapter 13 involves the same preparation and review of a petition, pre-filing and post-filing courses, and attendance at a meeting of creditors. There are also many motions and hearings involved, but your attorney handles those. You should not need to appear in court again after the meeting with the trustee, as long as you make your monthly payments on time.
Like Chapter 7, the cost of filing Chapter 13 can vary. The up front cost is usually $1,350 plus a $281 filing fee and $50 credit counseling fee. There are additional attorney fees, usually around $1,500 paid through your plan. There can also be an administrative reserve set aside in your plan. I try to offer the most competitive fee among experienced bankruptcy practitioners.
Foreclosure Defense – In Maine.
Homeowners have a right to mediation in foreclosure. We can use that as a vehicle to get a loan modification that might otherwise take a year or more to be approved. We often modify a first mortgage through mediation, then file Chapter 13 to eliminate a second mortgage or home equity loan.
Consumer Law Violations:
Whether you are in bankruptcy or dealing with a debt collector, there are laws protecting your rights. Often creditors and debt collectors violate those rights. We can determine if you have a claim for monetary damages and pursue that claim on your behalf, frequently at no cost to you.
Creditor Representation:
While I focus my practice on representing consumers, I also represent individuals who have claims against other people in bankruptcy. Just because someone files bankruptcy doesn’t mean an ex-spouse or wronged lender doesn’t have rights. However, there may be a very short time to take action to protect those rights.
Reinstatement
A reinstatement is the simplest solution for a foreclosure, however it is often the most difficult. The homeowner simply requests the total amount owed to the mortgage company to date and pays it. This solution does not require the lender’s approval and will ‘reinstate’ a mortgage up to the day before the final foreclosure sale.
Forbearance or Repayment Plan
A forbearance or repayment plan involves the homeowner negotiating with the mortgage company to allow them to repay back payments over a period of time. The homeowner typically makes their current mortgage payment in addition to a portion of the back payments they owe.
Mortgage Modification
Mortgage modification involves the reduction of one of the following: the interest rate on the loan, the principal balance of the loan, the term of the loan, or any combination of these. These typically result in a lower payment to the homeowner and a more affordable mortgage.
Rent the Property
A homeowner who has a mortgage payment low enough that market rent will allow it to be paid, can convert their property to a rental and use the rental income to pay the mortgage.
Deed-in-Lieu of Foreclosure
Also known as a “friendly foreclosure,” a deed-in-lieu allows the homeowner to return the property to the lender rather than go through the foreclosure process. Lender approval is required for this option, and the homeowner must also vacate the property.
Bankruptcy
Chapter 7 bankruptcy will eliminate personal obligations to the lender and will avoid tax consequences of a foreclosure. Chapter 13 may provide a second chance at a loan modification or give the homeowner up to 5 years to repay missed payments.
Servicemembers Civil Relief Act (military personnel only)
If a member of the military is experiencing financial distress due to deployment, and that person can show that their debt was entered into prior to deployment, they may qualify for relief under the Servicemembers Civil Relief Act. The American Bar Association has a network of attorneys that will work with servicemembers in relation to qualifying for this relief.
Sell the Property
Homeowners with sufficient equity can list their property with a qualified agent that understands the foreclosure process in their area.
Short Sale
If a homeowner owes more on their property than it is currently worth, then they can hire a qualified real estate agent to market and sell their property through the negotiation of a short sale with their lender. This typically requires the property to be on the market and the homeowner must have a financial hardship to qualify. Hardship can be simply defined as a material change in the financial stability of the homeowner. Short Sales can be the most challenging process and leave a homeowner with liability for a deficiency or with tax consequences.