Lenders are usually focused on ensuring the debtor paying debt owed, but should also be
focused on securing debt obligations.
Chapter 13 is typically chosen by people who have fallen
behind on their secured debt payments and want to propose a plan to catch up on the payments over time and keep their property.
Because a lender has the right to take property for secured debts you don't pay, it's nearly impossible to get them to accept a settlement
offer on a secured debt.
Despite a sometimes - bad reputation, Chapter 13 bankruptcy can have advantages, especially if you are
underwater on secured debts or facing foreclosure.
When filing for Chapter 13 bankruptcy, you'll have to repay your certain debts that have priority in full — such as taxes and child support payments — as well as making payments
on secured debts such as car loans and mortgages.
If a debtor defaults
on a secured debt after receiving a bankruptcy discharge, the lender will still be able to recover its collateral, but it will not be able to sue for any money.
If you
owe on a secured debt, property that is backed by collateral (such as a car loan, mortgage, etc.) you can either allow the creditor to repossess the property, continue to pay the loan under contract, or pay the creditor a lump sum equal to the current replacement value of the property (if the creditor agrees).
Even 100 % plans offer many benefits to consumers, like paying 0 % interest on unsecured debt and reducing the interest rate
on secured debts for cars to approximately 4.75 %.
But because Chapter 13 involves a reorganization of your finances rather than a discharge of debts, it is the Plan payment that gets allocated first to any arrears
due on a secured debt before anyone else gets paid.
In order to be confirmed by the court, the debtor must prove sufficient income to support a 3 - 5 year plan wherein payments
on secured debt such as mortgages and auto loans (including arrears) and non-dischargeable items continue and unsecured creditors typically get paid a small portion of their debts.
In addition, the
liens on secured debt — think mortgage and car loan — generally pass through bankruptcy unscathed, meaninig your obligation to pay them remains.
You can show how you've made on - time
payments on secured debt and even show how you've successfully saved money since your bankruptcy.
I nterest rates for unsecured personal loans are typically higher than the interest
rates on secured debt such as mortgages or car loans.
They are also used by folks who need lower payments at the beginning of their proposal, to allow them to catch up
on their secured debts (mortgage, cars, etc).
Secured debts: If you are not current on payments
on your secured debt — such as a mortgage or car loan — you will likely lose that property in Chapter 7 bankruptcy.
Remember that part of the means test takes into account your payments
on secured debts that due within the next 60 months.
Whether or not the debtor will be granted credit in the future is unpredictable, and probably depends, to a certain extent, on what good things the debtor does in the nature of keeping a job, saving money, making timely payments
on secured debts, etc..
As long as you make your payments
on those secured debts you get to keep the things that you're paying for.
In fact, if you fail to make payments
on secure debt the creditor can simply take the property back.
If you stop making payments
on a secured debt, the creditor has the legal right to take possession of the agreed asset.
Positive for Secured Debt: — Lower interest rates are
on secured debts, such as your home and car loans — because creditors see you as a «low - risk» — since they have a guarantee of payment.
If you don't make your monthly payment
on a secured debt, the creditor can legally take whatever asset you put up as collateral.
It is also still possible to convert a chapter 13 into a chapter 7 bankruptcy if the chapter 13 debtor doesn't doesn't have any funds left to pay towards debts, and who doesn't have to catch up
on secured debts or have non-exempt property to protect.