Will Chapter 13 Take All My Money?
If one of your only options when it comes to managing mounting debt which you can’t repay fast enough is to file for bankruptcy, you may be seriously considering filing for Chapter 13 Bankruptcy. If you are concerned about whether choosing to file for Chapter 13 can cause you to lose all of your money, such as the money which you’ve invested into your home and the money you’ve saved in your bank account, continue reading. To discover what will happen to your money, if you choose to file for Chapter 13.
Will Chapter 13 Take All My Money?
The Funds In Your Bank Accounts
If you’re particularly concerned about what will happen to the funds that you have already saved in your bank account, you’ll be happy to learn that once your bankruptcy has been put in place, these funds will be safe. This means that for the 3-5 year term of your bankruptcy, creditors such as credit card companies and loan companies will not be able to seize money that is protected by Chapter 13, from your personal bank account.
There are however two exemptions to this rule. If you have outstanding debts with the same bank where your personal bank account is located, your bank may try to seize some of your funds to pay for any debt which you may owe them. For this reason, it’s a good idea to consider opening a new bank account with a rival bank and shifting your remaining funds to this new bank account, before you file for Chapter 13. In order to ensure that your current bank can’t seize your funds.
The second exemption is that your appointed trustee will be able to access some of your funds, in an account that you have allocated, in order to make your mandatory loan repayments for you. Do keep in mind that you can monitor their activity and that a trustee is not allowed to transfer funds, other than the funds which have been earmarked by your 3-5 year bankruptcy plan, without your consent. If a trustee breaks this trust, they will be criminally prosecuted. So rest well assured that any money in your bank accounts will be safe for the period of your bankruptcy.
The number one reason why more individuals opt to file for Chapter 7 than Chapter 13, is that if you file for Chapter 13 you won’t have all of your assets seized when you file for bankruptcy. This means that through filing for Chapter 13 it’s possible to work out a 3-5 year payment plan in order to catch up on your mortgage repayments if you have a mortgage, in order to keep your home. You may find this particularly important if you have a spouse and dependents and live in your family home and can’t afford to lose your home and your sense of security.
If the bank has already notified you that they are planning to mark your home for foreclosure, you will still be able to prevent the foreclosure from going ahead by filing for Chapter 13 with a trusted lawyer, as soon as you can.
Catching Up On Mortgage Repayments
You may be concerned about how you can catch up on your mortgage repayments if you have so many debts and expenses and have no idea how you’ll be able to make your future mortgage repayments. The simple answer is that if you file for Chapter 13, while you’ll be expected to continue contributing towards your home mortgage repayments, you will not have to pay back all of your unsecured debts.
For example, the court will add up the total sum of your unsecured debts such as your credit card debt, your student debt, and your personal loans. Depending on factors such as your income, your equity, and your assets, the court will then determine what percentage of your total unsecured debts that you’ll have to pay. For example, one individual may be ordered to pay back 30% of their unsecured debts. However, do keep in mind that the percentage of your debt that you’ll be made to repay may be very different and will be decided by your income, ability to pay back your debts, equity, and assets.
If in doubt, it’s a great idea to talk to your lawyer about what percentage of your unsecured debts they believe you’ll be likely to end up paying. As lawyers who specialize in bankruptcy cases have plenty of experience helping individuals file for Chapter 13 and will be able to provide you with an estimate of the percentage of unsecured debt which you may need to pay if you file for bankruptcy.
What Happens To Your Assets In Chapter 7
Do note that if you did choose to file for Chapter 7, while you may have more of your outstanding debts cleared by opting to file for Chapter 7, the bank may choose to put your home into foreclosure so that they’ll be able to recoup some of the money which you currently owe them. If you file for Chapter 7 the bank or your creditors may also choose to seize some of your other assets such as your car, business, and personal investments. So if you have significant assets which you’d like to protect, opting for Chapter 7 may not be the best idea.
If you were concerned that you would lose the money which you’ve invested into your family home and your long-term savings, which you keep in your primary bank account, there is no reason to be concerned. As filing for Chapter 13 will not cause you to lose all of the money which you have worked hard to accumulate. In fact, if you want to retain as many of your assets as possible, it’s a far more logical move to file for Chapter 13 over Chapter 7, which is your only other option when it comes to filing for personal bankruptcy in the United States.
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