Choosing Chapter 13 Can Help You Deal With Non-Dischargeable Debt

Published Monday, August 10, 2009 @ 5:51 pm

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Liens can certainly throw a wrench in bankruptcy plans, especially for the unsuspecting. Unlike unsecured debts, which are simply discharged through a normal Chapter 7 bankruptcy, liens won’t be so efficiently eliminated with your filing. So what options do you have to at least address liens you can’t eliminate entirely?

One solution is to file for Chapter 13 bankruptcy rather than Chapter 7 and take advantage of some of the special privileges unique to that chapter. When you file for Chapter 13, you propose a repayment plan. Chapter 13 allows you to stretch out payments to creditors for the life of the plan, usually three to five years, and when it comes to a secured debt―that is, one where the lender holds lien on property that is acting as collateral to secure the interest― someone filing for Chapter 13 may be able to pay for only the value of the collateral rather than the total amount owed. This will occur if certain conditions are met, and it is definitely a huge advantage, because the value of personal belongings will almost certainly depreciate significantly below what is owed on the item. Thus, if you meet conditions, you get to keep your item and pay a lot less for it.

Take the example of a car. You will be entitled to pay for the value of the vehicle rather than what you owe on the loan if : 1) the loan you used to buy the car wasn’t a purchase-money security interest (i.e., what you put up for collateral wasn’t the car itself); or 2) if you bought the car for something other than personal use (say, for a business use); or 3) even if you did get the car for personal use and used a purchase-money security interest to pay for it, if the purchase occurred more than 910 prior to your filing for bankruptcy.

For an item other than a car, such as a household appliance you bought with  department store charge account, you will only be required to pay the fair market value of the item if the purchase was made more than 1 year ago. In North Carolina, if the seller or third party finance company issued a credit card in conjunction with the purchase, and that credit card has more than a 15% interest rate, the seller has no security interest whatsoever. This means the debt will be discharged as a general unsecured debt.

Thus it’s important to keep in mind that bankruptcy offers many ways to approach financial difficulties, even for those situations when it seems like the lender is holding all the cards.  Call an experienced bankruptcy attorney today to discuss your unique financial situation. In North Carolina, contact the Law Offices of John T. Orcutt today for your free initial debt consultation. 1-800-899-1414.

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