For most people, Bankruptcy provides the promise of a “Fresh Start” which means Chapter 7. However, there are situations where a Chapter 13 filing may actually resolve more debt than a Chapter 7 filing. The most common situation involves people with second mortgages. If you have an equity line of credit or a second mortgage and your home’s value is less than the first mortgage, you can strip the second mortgage by filing a Chapter 13. Since you are under means, the payment plan is only for 36 months. So if you owe $12,000 on a second mortgage, and you are paying 100 a month for the second mortgage, at 6% it will take you more than 12 years to pay off that second mortgage. Chances are you can pay that 100 or less into a Chapter 13 plan for 36 months and get rid of an additional 12,000 in debt. Filing a Chapter 13 under these circumstances may or may not be a good idea depending on your overall debt situation, including the amount of tax refunds, if any, you receive. In the Western District of Michigan, the Trustees will require you to turn over your tax returns as part of your Chapter 13 plan. They also prohibit you from changing your federal deductions during the life of the plan. So if you are thinking about filing for Chapter 13 make sure your deductions are at the legal maximum before you file. That way you can keep more of your money. Finally, if you can not afford to pay the Chapter 7 Fee, many attorneys will accept a small down payment with the balance to be paid through the Chapter 13 plan. If you find yourself unable to pay the Chapter 7 fee, and you are a home owner with a second mortgage in a bad real estate market, Chapter 13 may be the answer to your debt problems.
