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Chapter 13 Bankruptcy – Personal debt reorganization

Bankruptcy TestMany people have faced some form of financial difficulty in their lives. In some situations this has resulted in either missing very important payments such as mortgage payments, car loans or even payment plans with the IRS. When payments are missed, secured creditors can threaten to foreclose on real estate, or repossess your car or truck. In other situations, missed tax payments could result in the IRS threatening to come after your personal property and attach funds in your bank account or even take a portion of your weekly pay check.  When this happens it is extremely unnerving to the consumer. However, you should fear not, because the Federal Government has put in place a program to stop all of this, and even give you the chance to pay back your missed mortgage payments, car loans and even IRS debt interest free, penalty free over five years.  The program is a Chapter 13 Bankruptcy.

Chapter 13 bankruptcy is a personal debt reorganization of your finances, where you are given the opportunity to pay back those missed payments, or if you earn too much money to qualify for a Chapter 7 case, then you can only pay back your creditors the amount of money you truly can afford, based upon how much you have left at the end of each month after paying all of your expenses, such as mortgage, car payments, gas, food, and other necessities.

Another major benefit to a chapter 13 case is that you can ask the bankruptcy court judge to strip a junior lien from your property, or even reduce the principal owed on a car loan or mortgage to the value that it is actually worth. This reduction of the loan to the “fair market value” is called a cramdown.  This can even be done if the IRS has a lien on your personal property.

In some situations, tax payers may try to negotiate their debt down with the IRS in an offer in compromise.  However, sometimes, this attempted settlement of tax debt does not work due to the IRS denying your offer.  In this case, Chapter 13 bankruptcy is an alternative to an offer in compromise, and can allow you to pay down or reduce your tax debt significantly.

If you would like more information on Chapter 13 bankruptcy and if it would help you in your situation, please contact us today:

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