I am an Arizona bankruptcy attorney serving clients primarily in Phoenix, Tempe, and Scottsdale. Often I have clients in the Phoenix metro area that are disappointed that they cannot file a Chapter 7 Bankruptcy. This disappointment often ends up being unwarranted because a Chapter 13 Bankruptcy provides numerous benefits, especially in regards to real estate.
1) Lien Strip: A debtor who has filed a Chapter 13 bankruptcy may have the option to “strip” off junior liens on a primary residence if the 1st mortgage value is higher than the value of the house. This is tricky because even if the value of the house is worth just one more dollar than the 1st mortgage, the junior (aka 2nd or 3rd) lien on the house cannot be “stripped”. Once the “strip” is executed, the junior lien becomes unsecured and will be treated as just another unsecured creditor in the bankruptcy plan. As such, they will only receive a percentage recovery, dependent on what your Chapter 13 plan calls for you to pay. There are a couple different ways that a bankruptcy attorney can effectuate a successful lien strip, I will not go into these in detail so ask your attorney to explain how they perform a Chapter 13 lien strip if you need more information.
2) strong>Cram down of rental property: This is tricky so I will not go into too much detail on this. But it is possible to cram down the mortgage on a rental property (i.e. not your principal residence) to the actual value of the real property. I could easily write a couple of pages on this topic and this is meant to be a brief article so, if you need this done, make sure you talk to an experienced bankruptcy attorney. If you need help and are located in Arizona, give me a call.
3) Ability to pay off arrearages in the Chapter 13 plan: A debtor who is behind on their principal residence mortgage payments can include the amount they are behind in their 36 or 60 month bankruptcy plan. The same benefit is not afforded to debtors who file Chapter 7 bankruptcies; therefore, in most cases to avoid a trustee sale, a Chapter 7 debtor would need to catch up on their arrears in full to avoid the sale and keep your principal residence. Dependent on the circumstances, this often is a huge benefit for the Chapter 13 debtor. For example, say a potential bankruptcy filer (call her Phillis Filer) is trying to decide on whether to file a Chapter 7 or Chapter 13 bankruptcy. Phillis is $15,000 behind on her house payments. If she is on a 60 month (most common length of plan) Chapter 13 bankruptcy plan, $250 per month will be paid from her bankruptcy plan towards the $15,000 that she is behind. And, at the end of 60 months, she will be all caught up on her house payments. On the other hand, if Phillis files a Chapter 7 bankruptcy, she will have much less time to catch up on the amount she is behind to avoid a trustee sale.
Keep in mind, there are many factors as to whether or not a certain Chapter in bankruptcy is filed. Not everyone will qualify to file a Chapter 13 or a Chapter 7 bankruptcy. This is only meant to give a brief summary of certain advantages a Chapter 13 bankruptcy may offer. This is not a substitute for the advice of an attorney who knows your situation in detail and is licensed to practice in your state.
I am an Arizona attorney and my articles only deal with Arizona and Federal Bankruptcy law. All legal services offered to Arizona Residents Only. This article should not be construed as legal advice, if you need to file a bankruptcy, contact an attorney in your state.