Despite what you have read or heard, bankruptcy might not always be the best way to get rid of debts, say, lawyers of Dallas based bankruptcy law firm https://recoverylawgroup.com/. Though there are numerous instances when Chapter 13 bankruptcy plan has worked for the greater good of the debtor, there are some instances when filing for Chapter 13 bankruptcy might not be the best move. For instance, a client who is already five years into debt consolidation pays $400 per month with a remaining balance of $3,500. His home is worth $300,000 while he owes $325,000 on his 1st mortgage while $58,000 on his 2nd mortgage. He is current on his second mortgage which has a monthly payment of $600. Since the client makes $100,000 per year and lives frugally, filing for chapter 13 bankruptcy would not be the best way to get rid of debts.
Though bankruptcy will get rid of your 2nd mortgage and turn it into an unsecured claim, you will have to put all your disposable income into the Chapter 13 repayment plan for a period of 60 months. Currently, the client is paying $1,000 ($400 for consolidation debt and $600 for 2nd mortgage); thus Chapter 13 repayment plan will involve a sum of at least $1,000 per month. Since the debtor is living within their means, they might even up the disposable income. Over the duration of the repayment plan, they will end up clearing their debts in full including the 2nd mortgage. Thus, the advantage of opting for a Chapter 13 bankruptcy is that you end up repaying all your debts without paying any more interest. When it comes to the disadvantages of opting for Chapter 13 bankruptcy, in this case, there are quite a few. Filing for bankruptcy will include:
- Attorney fees ($4,000) for a basic chapter 13 case
- Attorney’s fees to strip off the lien ($1,500)
- Court filing fees $281
- $200 for real estate appraisal
- Bankruptcy trustee’s fees $6,000
- Compulsory credit counseling fees $25
I.e. you will end up paying nearly $12,000 for filing Chapter 13 bankruptcy case. This will eliminate any savings you would have made on getting rid of the interest on your debts. Additionally, entering Chapter 13 bankruptcy will put you 5 years behind on getting on a path to credit recovery. Since the debtor was already in a debt consolidation plan for 5 years, this would mean getting 10 years behind. In this situation, working on the consolidation program to get rid of your debts will be the best way. Once that is removed, you can get rid of the 2nd mortgage. To get excellent consulting advice, you can speak with experienced bankruptcy attorneys at 888-297-6023.