In the past, Chapter 13 bankruptcy was primarily utilized by Long Island New York residential homeowners (including owners of co-ops and condos) who were in foreclosure to allow them to repay their mortgage arrears as well as all, or a portion of, their unsecured debts under the supervision and protection of the United States Bankruptcy Court.
While foreclosure remains the primary reason to file a Chapter 13 bankruptcy petition, individuals who may not be homeowners, or homeowners who are current on their mortgage obligations, but have incomes above the median income in New York and may not be eligible to file a petition for Chapter 7 bankruptcy can file a petition for Chapter 13 bankruptcy to effectively deal with their debts.
Chapter 13 bankruptcy is designed for working people with steady incomes who want to pay their debts but are currently overwhelmed with bills, judgments, lawsuits, and other financial issues. Even if you do not own a home, the filing of a Chapter 13 bankruptcy petition can assist you to regain control of your financial situation.
A Chapter 13 bankruptcy repayment plan allows an individual to repay mortgage arrears and some, or all, other their other debts (such as credit cards, medical bills, etc.), over a three to five year period. While a Chapter 13 plan is in effect, creditors cannot either start or continue their collection efforts, and they must accept what the plan pays them. Any individual, or married couple, even if self-employed, can receive Chapter 13 bankruptcy relief if they owe less than $1,184,000.00 in secured debt (i.e. mortgages, car loans, equity loans), and less than $389,000.00 in unsecured debt.
Do You Have a Second Mortgage? A Cramdown May be An Option
Chapter 13 Bankruptcy also offers an important, and often unknown and over-looked, option to consumers who have second and/or, perhaps third, residential real estate mortgage liens on their primary residences – namely, that of removing those junior liens from your home. If the current fair market value of your home (as determined by an appraisal prepared by a licensed real estate appraiser) is below the present outstanding balance on your first mortgage (including arrears, if applicable), the second mortgage lien can be “stripped”, and the debt associated with it can be reclassified as a unsecured debt (such as credit card debt, etc). This is also referred to as a “Cramdown” or “Lien Stripping.”
The stripping/cramdown provisions in the Bankruptcy Code affecting second mortgage liens have been available to Long Island New York homeowners in Chapter 13 bankruptcy since 1994. Even if you have already modified your first mortgage directly with your lender, or are in a trial modification on your first mortgage, this relief may be available to you.
Upon the successful completion of a Chapter 13 repayment plan, the debtor receives a Certificate of Completion and Discharge, which extinguishes all obligations to make further payment toward their unsecured debts, even though these creditors may not have been paid in full. In fact, many people repay their unsecured creditors no more than 10, 20 or 30 percent of the total amount owed. Chapter 13 bankruptcy has also helped to save the homes of thousands of Americans every year.
No Better Time to Act than Now
If you are reading this, you most likely already believe that you are experiencing financial difficulties. In my 20+ years as a Long Island Bankruptcy Lawyer, I have learned that each individual I have assisted had reached a “breaking point” – that event that triggered the need to seek counsel. If you feel you are at that point, I encourage you to contact me to find out if Chapter 13 bankruptcy protection is right for you. My initial consultations are always free. The value of the consultation could be priceless.