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Recent Blog Posts
Chapter 7 Buys Time and Money to Move from a Foreclosing Home
Filing a Chapter 7 case stops foreclosure of your home temporarily, helping you gather funds for your transition to your next housing.
Last week we went through a list of ways Chapter 7 buys you time when dealing with a home foreclosure. Included was that filing a Chapter 7 case “can give you time to surrender your home while saving up for moving expenses.” This deserves a more thorough explanation.
Stopping a Foreclosure
The filing of a bankruptcy case, including a Chapter 7 “straight bankruptcy” one, stops a pending home foreclosure sale. This happens through the “automatic stay,” the law which freezes most creditor collection actions the moment you file bankruptcy. In particular, the automatic stay statute says that a bankruptcy filing stops “any act to... enforce any lien” against your property. (See Section 523(a)(4) and (5) of the U.S. Bankruptcy Code.) A mortgage lender’s foreclosure of your home is an act to enforce a lien. So your bankruptcy filing stops it from happening.
Chapter 7 Buys Time to Change to Another Vehicle
Filing a Chapter 7 case stops repossession of your vehicle temporarily. If you are getting another vehicle, that can be valuable time.
A week ago we went through a list of ways Chapter 7 buys you time with your vehicle lender. Included was that it “gains you some time to get another vehicle before surrendering your present one.” We’ll show you how this works.
Transitioning to Another Vehicle
The two different types of consumer bankruptcy give you a number of ways to keep a vehicle that you’re having a hard time making the payment on.
Chapter 7 stops a repossession if you’re behind on payments or insurance. It discharges all or most of your other debts so that you can better afford your vehicle payments. This can also help you afford insurance, vehicle repairs and maintenance, and the other costs of ownership. If you’re a little behind on payments it gives you a month or two to catch up.
Chapter 7 Buys Time to Redeem Your Vehicle
If your vehicle is worth less than its debt, and you can get the money representing that value, you can “redeem” the vehicle free and clear.
Two blog post ago we went through a list of ways Chapter 7 buys you time with your vehicle lender. Included was that it buys “time to gather funds to redeem your vehicle for less than you owe on it.” This “redemption” option deserves more attention.
Reaffirmation and Redemption
If you want to keep your vehicle in a Chapter 7 “straight bankruptcy,” your two options are “reaffirmation” and “redemption.” You can either reaffirm the debt or redeem the vehicle.
Reaffirmation is far more common. You enter into a reaffirmation agreement, agreeing to repay the loan as if you had not filed bankruptcy. You almost always recommit to paying the entire loan balance, reaffirming that you want to pay it. You agree to remain liable on the original loan, excluding it from the discharge that you are receiving of all or most of your other debts. (We covered reaffirmation a few months ago.)
Chapter 7 Buys Very Short Amount of Time to Get Vehicle Insurance
Chapter 7 stops a repossession of your vehicle for lapsed insurance, but almost always the amount of time it buys you is very short.
Our last blog post went through a list of ways Chapter 7 buys you time with your vehicle lender. Included in that list was that it gives you “a very limited time to reinstate required vehicle insurance.” This deserves more attention.
Vehicle Insurance Required
According to Minimum Car Insurance Requirements by State, a recent article in nerdwallet.com, almost every state’s laws require vehicle owners to have at least a certain dollar amount of liability insurance coverage. That covers damages that you cause in an accident. The one state that doesn’t require liability coverage is New Hampshire. There are other exceptions. In Virginia drivers with a clean driving record can drive without liability insurance by simply paying an annual fee. In Arizona and some other states you can avoid liability insurance by providing a bond, certificate of deposit, or cash to the DMV.
Many Ways to Buy Time for Your Vehicle and Home through Chapter 7
Chapter 7 buys you the crucial time you need in many situations when falling behind in your obligations related to your vehicle or your home.
In the last several weeks of blog posts we’ve given many examples of how bankruptcy can buy you time for your vehicle and for your home. Here’s a summary how a Chapter 7 “straight bankruptcy” can do so.
1. Chapter 7 Buys Time for Your Vehicle
- Stops your vehicle from being repossessed, at least temporarily
- Gives you a some limited amount of time to catch up if you’re behind on payments
- Gives a very limited time to reinstate required vehicle insurance
- Gains you some time to get another vehicle before surrendering your present one
- Buys time to gather funds to redeem your vehicle for less than you owe on it
- Buys time to enter into a redemption loan to lower your debt on the vehicle
2. Chapter 7 Buys Time for Your Home
Dealing with Recorded Tax Liens through Chapter 13
A recorded tax lien gives the IRS/state a lot of leverage against you and your home. Chapter 13 can gain you back some of that leverage.
Stopping Tax Liens by Filing Bankruptcy
In our last blog post we showed how Chapter 13 can buy you more time and flexibility than Chapter 7. We showed an example how that’s especially true if you owe more than one year of income taxes. Our example assumed that two tax years met the conditions to discharge (legally write off) that debt, while another tax year didn’t.
That example assumed that the IRS/state had not yet recorded a tax lien on your home for either tax year. A bankruptcy filing stops a tax lien’s recording. Then if the tax debt is discharged, the debt is gone so there’s no further basis for a tax lien. Or if the tax debt is paid in full (usually through a Chapter 13 payment plan) again there’s no further debt on which to impose a tax lien.
Buy Lots More Time to Deal with Multiple Years of Income Tax Debts
If you have an income tax debt that qualifies for discharge and also some tax debt that doesn’t, Chapter 13 is often your best option.
Stopping Tax Liens through Chapter 13
In our last blog post we showed how Chapter 7 might prevent an income tax lien from hitting your home. It stops the recording of the tax lien through the power of the “automatic stay,” which stop virtually all creditor collection activities. And then you get a discharge (write-off) of the tax debt. But then we added a twist: owing one or more additional tax years’ of debt which does not qualify for discharge. What if you have a tax that meets the conditions for discharge and one or more years’ that don’t? We showed how sometimes Chapter 7 can deal with this effectively, if the still-remaining tax debt is manageable.
But what if the taxes you still owe are not manageable? In a Chapter 7 case the protection of the “automatic stay” ends as soon as the case ends, usually just 3-4 months after it’s filed. So after that you could easily get a tax lien recorded against your home for the still-owed taxes.
Buy Time to Deal with Multiple Years of Income Tax Debts
What if you have some income tax debt that qualifies for discharge but one (or more) tax year that doesn’t? Does Chapter 7 ever help enough?
Tax Liens under Chapter 7
Last week we showed how Chapter 7 can sometimes permanently prevent an income tax lien from hitting your home. It does that by stopping the recording of the tax lien, and then discharging (writing off) the tax debt.
This works under Chapter 7 “straight bankruptcy” when both:
- that income tax debt meets the conditions for discharge (mostly it’s old enough)
- the IRS/state has not already recorded a tax lien
But what if your tax debt meets these circumstances but you have other reasons to file a Chapter 13 case? (For example, you need to do a “cramdown” on your vehicle loan, catch up on a mortgage or on child/spousal support, or financially don’t qualify for a Chapter 7 case.) In particular what happens if you owe other income taxes that do not qualify for discharge? And what happens if a tax lien has already been recorded before you could stop it with a bankruptcy filing?
Buy Time to Get Current on Home Property Taxes
Falling behind on home’s property taxes creates a special problem. The tax collector will likely be much less pushy than your mortgage lender.
Falling Behind on Property Taxes
If you have a mortgage on your home you can fall behind on your property taxes two ways.
First, most likely you’re paying your taxes as a portion of what you send monthly to your mortgage lender. When you don’t pay your monthly payment to your lender, you fall behind on both the mortgage and your taxes.
Second, if you’re paying your taxes directly to the county or other tax agency, you fall behind by not paying when it’s due.
The Consequences, Short Term and Long Term
Not paying your property tax results in losing your home through a property tax foreclosure. But in most parts of the country that doesn’t happen for a number of years past the due date. For quite a while you’ll likely just get occasional notices from the county/tax agency reminding you that you’re late.
Buy Time to Sell Your Home with Chapter 13
If you are behind on your mortgage, and are thinking of selling your home, you can often delay selling for many months or even for years.
Our last blog post was about the relatively long time Chapter 13 gives you to catch up on your mortgage. Besides the 3 to 5 years it gives you, Chapter 13 also protects you while you’re also dealing with other important debts. So filing a Chapter 13 case is a powerful way of buying time and gaining flexibility for your home.
That is just as true if you want to sell your home instead of keep it. Chapter 13 can buy you time and flexibility. You can often prevent being rushed into selling when the markets not right. You can prevent having to sell when doing so causes personal or family hardships. ln many circumstances, you can hold off on selling your home for many months, and even years. You will have to pay your mortgage in the meantime but you may be able to hold off on paying some or all of missed mortgage payments until the sale.
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