How Chapter 13 Works
When you file for Chapter 13 bankruptcy, the court will assign a trustee to help restructure all your debts into one payment. They will then develop an affordable monthly fee, depending on your income. Usually, the plan includes all your debts except your mortgage payment. So, if you file for Chapter 13 and have outstanding mortgage payments, you must continue repaying it separately.
Does Chapter 13 Help with Mortgage Payments?
Yes, it does.
A mortgage is a secured debt, which means it cannot be discharged in bankruptcy. Falling behind on your payments may force your lender to repossess the home to recover their debt. Fortunately, Chapter 13 bankruptcy can help clear your arrears and continue your payments, helping you keep your home. It is also a suitable alternative if you do not qualify to file for Chapter 7 bankruptcy.
While in bankruptcy, you should not incur new debts for a specific period before filing and while in bankruptcy. So, if you want to rent or buy a home, here is everything you need to know about this while in Chapter 13 bankruptcy. However, before filing, there are things you need to consider. These things include:
Moving and Renting
Before filing for bankruptcy, you must understand your current living conditions and needs. Can you pay your rent at your current residence? If not, is it better to move? Although Chapter 13 can help you keep your home, some debtors prefer surrendering their home to avoid paying the mortgage payments.
Remember, while in bankruptcy, it may be harder to find a home as most landlords may not have faith in your ability to meet your rent payments. So, consult your bankruptcy attorney and inform them of your situation. Though, in most cases, it is best to move if your lender has filed a foreclosure. If not, you can live in the house for a few months after filing for bankruptcy.
Your bankruptcy attorney understands the state laws on foreclosure best and can advise on the best way forward. Should you choose to keep and live in the home, you need to begin saving money to channel toward the mortgage or rent. Discuss your options with a bankruptcy attorney. They will explain your options, advise you on the best course of action, and give you a timeline for moving before filing a Chapter 13 bankruptcy case.
Purchasing a Home
The process will be complicated if you want to buy a home while continuing with your Chapter 13 repayment plan. Getting a mortgage will be difficult since you cannot incur new debt in Chapter 13 bankruptcy unless you petition the court. A bankruptcy court rarely approves a mortgage for a debtor. Besides, most lenders will not find you eligible for a mortgage. In the rare case that you qualify for a mortgage, the lender will charge high interest rates.
So, if you want to buy a home, consider purchasing before filing for bankruptcy or after completing your case. However, getting a mortgage right before filing for Chapter 13 bankruptcy may be fraudulent. Consult your bankruptcy attorney. They will assess your financial situation and, depending on your specific situation, will discuss the advantages and disadvantages of buying your home before filing for bankruptcy.
Purchasing a Vehicle
Is your current vehicle worn out, or does it need expensive repairs that might cost more than buying a new car? In this case, consider purchasing a vehicle before filing for bankruptcy. At the same time, you can buy a car while in Chapter 13 bankruptcy. Like any new debt, you will need to seek court approval, but there is no surety that the court will approve your request. So, instead of taking chances, some people purchase before filing.
Do not be extravagant if you buy a car before filing for bankruptcy. Also, do not finance the car for more than 60 months. You might not reduce the car loan if you file Chapter 13 bankruptcy because you recently bought the car. Your payments may increase if you financed the car for more than the 60-month maximum period allowed in the Chapter 13 plan.
Discuss your need for a new car with a bankruptcy attorney before moving. An attorney can assess your financial situation and see how much you can pay monthly toward the car loan. The goal is to incur new debt without affecting your Chapter 13 plan payments.
How Soon Can I Rebuild My Credit After Filing Bankruptcy?
A significant downside to filing bankruptcy is your credit rating gets negatively impacted. Credit rating is critical as it affects your finances. A low credit score will affect your ability to qualify for new credit. Some landlords also consider your credit record before renting to you. So, with bankruptcy in your credit record, it will be hard to rent an apartment or a house.
Rebuilding credit after filing for Chapter 13 bankruptcy is a significant concern for debtors. Just because it is hard does not make it impossible. You can start by avoiding incurring new debt. Always make your rent, mortgage, and utility payments on time. Once you complete your Chapter 13 case and discharge your debts, focus on improving your credit.
For example, you can get a secured credit card to rebuild your credit card. Unlike other credit cards, a secured credit card will need you to have a deposit with the card to secure charges. So, it reduces the risk to the lender. Use a secured credit card to improve your credit score and ensure timely monthly payments.
However, you might get other credit cards to avoid overspending. Also, note that applying for too many credit cards will hurt your credit score as it will reduce your DTI (debt-to-income ratio), a significant factor in determining your credit rating.
Get more tips on rebuilding your credit after filing for bankruptcy here.
Would You Like to Know More?
If you need to consult an experienced Chapter 13 bankruptcy attorney, we can help you find one in your state that provides free consultations. We aim to ensure debtors explore all debt relief options and decide which works best. We believe you can get a fresh financial start after getting rid of debt. Contact us today to discuss bankruptcy and the different alternatives available for free.
