Bankruptcy doesn’t just help you discharge your unsecured debts. It also stops collection activity and helps you rework your budget. Chapter 13 bankruptcy, in particular, can help those with a steady income and personal property protect themselves during times of financial hardship.
Falling behind on certain accounts might just mean collection calls and past-due notices. With other accounts, late or missed payments might be losing the collateral property, like your house or your vehicle.
You can reaffirm your loans to ensure you keep the collateral property, but that won’t necessarily fix things if you have trouble making payments or have already fallen behind. In a Chapter 13 bankruptcy, you may be able to renegotiate the terms of your loan to make it easier for you to stay in good standing. What are some of the adjustments you could request in a bankruptcy filing?
You can request delaying the missed payments
If you have missed several loan payments, you usually have to pay the entire past due amount to bring your account back into good standing. When your budget is already tight, that may not be a realistic goal.
While the lender likely won’t forgive the missed payments, they may agree to move them to the end of the loan, effectively extending your repayment period. Your account will no longer be past due, and the lender can collect interest on those missed payments, possibly for years.
You can ask for a lower interest rate
Perhaps your financial issues affected your credit score and prevented you from trying to refinance. You may have worried that you wouldn’t qualify for good terms.
During a Chapter 13 bankruptcy, mortgage lenders sometimes agree to reduce the interest rate on someone’s loan so that their payments become more manageable. While you may still not received the best rates available on the current market, you may be able to reduce your interest rate by half a percent or more, depending on your current rate.
You can ask for lower monthly payments
Maybe the lender won’t reduce your interest rate, but they may consider lowering how much you pay each month by finding the length of the loan. Instead of just a few extra months to accommodate missed payments, you may need to add several years onto your repayment plan to make your amount due each month more manageable.
Having you reaffirm the loan and maintain the collateral property is usually a more cost-effective solution for the lender than repossessing or foreclosing on the property. Looking at the different ways to use a Chapter 13 bankruptcy filing to make your financial obligations more manageable can help you maximize the benefits you receive from a bankruptcy filing.