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Recent Blog Posts
The Surprising Benefits: Ending Your Vehicle Lease under Chapter 13
Chapter 7 gets you out of a vehicle lease owing nothing. Chapter 13 is more complicated but can give you pretty much the same good result.
Ending a Vehicle Lease in Chapter 7
Our last blog post was about how a Chapter 7 “straight bankruptcy” can get you out of a vehicle lease. You can “reject” a financially bad lease, and then discharge (permanently write off) whatever you’d owe after surrendering the vehicle. Otherwise you could owe a lot of money when you get out of the lease.
So if you decide that you don’t want to keep your leased vehicle, and need bankruptcy relief, Chapter 7 is likely the cleanest solution.
Ending a Vehicle Lease in Chapter 13
But what if you have other reasons to file a Chapter 13 “adjustment of debts” case instead? Chapter 13 can be a great way to save your home, catch up on child or spousal support, deal with income tax debt, and solve many other big financial problems, much better than under Chapter 7.
The Surprising Benefits: Rejecting Your Vehicle Lease under Chapter 7
Getting out of a vehicle lease in a Chapter 7 case requires simply that you formally state that you “reject” it. Then you owe nothing more.
Last week we showed how a vehicle lease can be unexpectedly expensive, and that you can escape through Chapter 7. Today we show you how.
The Option of “Rejecting” the Lease
When you file bankruptcy you get to choose whether or not to keep your leased vehicle. Specifically you choose to either “assume” or “reject” the lease. Assuming the lease means keeping the vehicle and continuing to be legally bound by all the terms of the lease. Rejecting the lease means letting the vehicle go. This allows you to “discharge”—forever write off—all of your financial obligations on the lease. (See Section 365 of the Bankruptcy Code generally about the assumption and rejection of unexpired leases. Warning: it’s very complicated and confusing!)
How to Rebuild Credit After a Texas Bankruptcy
Though many people think a bankruptcy can ruin their credit for the rest of their lives, that is not necessarily true. When you file for a Chapter 7 or Chapter 13 bankruptcy, it stays on your credit report for at least seven years. Though that can be disheartening, you should not worry too much - you can start to rebuild your credit right after you file for bankruptcy. Often, people find that their financial situations and credit scores are even higher than they were before bankruptcy, given you can change the reason you became buried in debt. Though it can seem daunting, rebuilding your credit score after you file for bankruptcy is crucial. Here are XX ways to help build your credit back up.
Create a Budget
One of the first ways you can make sure you are on the track to financial success is by creating a monthly budget to keep track of your spending. There are numerous websites and apps that can help you do this, but they all essentially do the same thing - take your monthly earnings and subtract monthly expenses, budget for a few luxuries and then use what is left over to pay off debt, invest, or deposit into a savings account.
The Surprising Benefits: Escape from Your Vehicle Lease in Bankruptcy
Leasing a vehicle is tempting because it seems to be the less expensive way to go. But it’s often MORE expensive. Escape through bankruptcy.
The Temptation of a Vehicle Lease
Leasing can seem like a sensible way to get a new vehicle. You often pay less money down and pay lower monthly payments. So leasing can sometimes be a way to get reliable transportation for less money. At least in the short term.
The Hidden Economic Costs
But there are hidden costs.
First, at the end of your lease term you own nothing. Your payments don’t create any ownership. They give you nothing more than immediate possession.
At the end of the lease you don’t have a free and clear vehicle as you do after paying off a vehicle loan. You don’t have a vehicle free of monthly payment for a few years after pay-off. Instead of a free and clear vehicle at the end of the contract you’re stuck with figuring out how you can afford another vehicle.
The Surprising Benefits: An Example of Vehicle Loan Cramdown
Vehicle loan cramdown can greatly reduce your monthly payment and the total amount you pay on your loan. Here’s a helpful example.
Cramdown in Chapter 13
Last week we introduced cramdown as an extremely helpful tool for reducing the cost of your vehicle loan. Cramdown can often:
- Reduce your monthly payments—sometimes significantly.
- Reduce the amount you pay on your vehicle contract altogether—often by thousands of dollars.
- Excuse you from catching up on any back payments on your vehicle.
Here’s an example to illustrate just how good cramdown can be.
The Facts in Our Example
Assume you are making payments on a 2015 Ford Fusion SE that you bought new more than three years ago. You bought from a dealer for $27,000. After adding the various fees and taxes, and subtracting your modest down payment, you financed $27,000. Because your credit was iffy your loan was at the high interest rate of 8.9% on a 84-month loan.
Which Bankruptcy Option Eliminates All Debt?
One enticing benefit to filing for bankruptcy is the ability to discharge debts, enabling a fresh financial start. The United States bankruptcy code was created to allow honest debtors to free themselves from insurmountable debt; however there are various limitations. Unfortunately, these limitations restrict which debts become eliminated, reduced, or remain the same. Therefore, regardless of whether you file for Chapter 7 or Chapter 13 bankruptcy, some outstanding debts are untouchable.
Which Debts Are Eliminated?
Which debts discharge relies heavily on the type of bankruptcy filed by the consumer. Chapter 13 bankruptcy does not eliminate any debt initially, yet restructures the current sums into an affordable repayment plan. This repayment plan typically lasts three to five years, at the end of which any eligible debts are discharged. When you file for Chapter 7 bankruptcy, any unsecured loans become eliminated immediately. In some instances, unsecured debts make up all of the financial burdens. These debts include:
The Surprising Benefits: Saving Your Vehicle Better through Chapter 13
Chapter 7 is limited in how it can help with your vehicle loan. Chapter 13 can do much more—buy more time and often reduce your payments.
Problems to Solve
Last week we addressed the kind of help Chapter 7 “straight bankruptcy” provides on your vehicle loan. Mostly it clears the deck of your other debts so that you can afford to keep your vehicle. Hopefully Chapter 7 accomplishes that.
But what if you can’t afford the contractual monthly payments even then? What if your vehicle isn’t worth what you owe on it? What if you’re behind on your payments or insurance and can’t catch up fast enough?
If you can’t or don’t want to keep your vehicle Chapter 7 also gives you the option of surrendering it. The benefit is that it legally write off your obligation to pay the “deficiency balance.” That’s the often surprisingly large remaining debt after a vehicle repossession or surrender. Writing off the debt is better than being saddled with it if you don’t file bankruptcy.
Foreclosure: Will the Bank Take My Home if I Miss a Payment?
Consumers who struggle to make monthly mortgage payments quickly become overwhelmed with collection calls and letters plaguing the mailbox. Fight or flight instincts immediately kick in, and most people choose to ignore the lender’s collection efforts. Many automatically assume that the bank immediately wants their home and retreat into self-preservation efforts. The truth is, the bank does not want your house. Lenders want you to pay the mortgage, and in most cases, if they can help you make that payment and save your home, they will. If the mortgage lender fails to reach an agreement with the borrower, imminent foreclosure efforts can stay through a bankruptcy filing.
Why Will the Bank Help?
The home you live in belongs to your mortgage lender. When you purchased, they assumed the cost of the home for you with the agreement that you would pay monthly payments until the loan is repaid in full. Until that day, the house belongs to the mortgage company. While they will not typically help someone with no potential benefits for themselves, they also are not in the business of buying and selling real estate either. If lenders must take a house in the foreclosure process, not only do they lose out on the money they would make in your interest payments, they also must pay the legal costs for the foreclosure process and the costs to sell the home, typically for less than the original amount. Lenders ultimately prefer to salvage the mortgage agreement, either by extending the loan or lowering the interest rate. If their borrower fails to communicate, this option is null, and the lender must begin foreclosure proceedings.
The Surprising Benefits: Saving Your Vehicle through Bankruptcy
Bankruptcy can get you out of the dilemma that a vehicle loan can put you in. Chapter 7 works if you can afford the loan payments afterwards.
Here’s the Problem
You’re paying on a car or truck. You absolutely need this vehicle for getting to work, and to keep your life going. You can’t do without it.
But you’re having trouble keeping up on the loan payments. You owe lots of other debts, so keeping current on the vehicle loan is a big challenge. It’s a big stressor every month.
On top of that there’s a good chance that you owe more on your vehicle than it is worth. You know that if you somehow found other reliable transportation and surrendered your present vehicle—or if it was repossessed—you could easily still owe thousands of dollars of “deficiency balance.” That’s the amount you would owe on the loan after the surrender or repossession.
The Surprising Benefits: Chapter 13 Potentially Discharges Divorce Property Settlement Debts
Chapter 13 can write off some or all of the non-support debts included in your divorce. But it comes with some potential disadvantages.
Last week we explained how Chapter 7 cannot write off non-support divorce debts, but Chapter 13 can. We said if you owe a significant debt created by your divorce decree (for other than child or spousal support) you should talk with a bankruptcy lawyer. Don’t necessarily think that Chapter 13 is your best option with this kind of debt. Chapter 13 has advantages and disadvantages. We get into these now so you can start to see which option is best for you.
Non-Support Divorce Debts
Support debts are not discharged (written off) under either Chapter 7 or 13. Only non-support debts can be discharged under Chapter 13 (and not Chapter 7). So we need a quick, practical reminder what we mean by non-support debts.
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