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How a Chapter 13 Bankruptcy May Help You Hold On To Your American Dream
The American dream can be expensive. Often times this dream is portrayed as homeownership with a couple of cars in the driveway. How one goes about obtaining the American dream in today’s reality is another story. Chasing the American dream has led people to run up huge consumer credit card debt and take mortgages they can’t afford. On top of all of this, many consumers are dealing with the threat of car repossession. So what is the answer? Well, the first step we as a country must do is to become willing to live within our financial means. This is a hard pill to swallow when every time you turn on the television there is an add screaming to you that now is the time to buy. But living within your means is the first step to financial freedom.
However, the process of starting to live within one’s financial means can be more complicated than simply purchasing only what you can afford without credit. For many Americans, in order to keep the roof above their heads or the vehicle that takes them to and from work, using credit is a necessity. There is an argument that perhaps people should just surrender their too expensive cars and homes and just get on with their lives, free of debt. Unfortunately, it is often the case that giving back the house or car will result in a deficiency that the consumer is liable for. That means that any debt that remains after the sale of the house or car at auction, the consumer may be on the hook for. In that situation, bankruptcy is definitely an option that should be considered. But if you are going to file for bankruptcy, perhaps it would be beneficial to use all of the tools at your disposal.
If you are someone who owns a home with multiple mortgages and/or has financed vehicles, than filing for chapter 13 bankruptcy relief may help you keep your assets and pay less to do so. This is because in a chapter 13 bankruptcy, unlike the more commonly filed chapter 7, you are allowed in some cases to modify your contracts with secured creditors. A secured creditor is a creditor who has extended you credit to purchase a tangible asset like a car or home. However, the creditor now has a security interest in that asset. If you fail to make your payments to the creditor they can take back the asset in lieu of payment.
One of the most common secured creditors is a vehicle loan company. Even with the new credit restrictions a vehicle loan is still a fairly easy loan to qualify for if you are working. And if you are working, you obviously need reliable transportation to get you to and from your job. However, a car is also the asset that will experience the most depreciation over time. In fact, as soon as you drive off the lot the car is worth less than what you just paid for it! A chapter 13 bankruptcy may ease that burden slightly. That is because in a chapter 13 bankruptcy, if you purchased your car more than 2 ½ years prior to your bankruptcy filing, you can lower what you owe on your car to what it is currently worth. That means that if you owe $25,000 on the car, but its only worth $15,000, then you can lower the loan amount to reflect the current value of $15,000.00 and discharge the remaining $10,000.00 in your bankruptcy. In addition, often times you can also lower the interest rate on the car loan.
But wait! It gets better! In a chapter 13 bankruptcy it may also be possible to remove a second mortgage, sometimes referred to as a line of credit, from your home if you can show that the value of your home is less than the first mortgage against it. A couple of years ago, this was very easy to do as the housing market was near the bottom. Now-a-days though, as the housing market has begun to heat up again, this may be a bit more difficult. But if you can show that the home is worth less than what you owe on your first mortgage, in California, you may “strip off” that mortgage entirely. At the end of your bankruptcy, the court will order the second mortgages lien unenforceable and you will be left with only one mortgage on your home. This can be hugely beneficial to someone who wants to hang on to their house.
Filing bankruptcy may sound like a strange way of holding on to the American Dream, but as the saying goes, these are strange days. If you think a chapter 13 bankruptcy may benefit you, contact a qualified bankruptcy attorney today.
The Law Offices of Melanie Tavare is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code
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