How Does a Chapter 13 Work? Mortgage Reduction
Filing a Chapter 13 Reorganization Plan
Understanding exactly how debt can be restructured under Chapter 13 reorganization can be confusing. Since it is a customized debt consolidation plan, ultimately you would need to meet with an Attorney to discuss your personal circumstances and get expert legal advice on how we can improve your finances within 36 - 60 months. We offer free consultations to explain your options.
Here is a practical example of how the second mortgage elimination works in a Chapter 13. This example demonstrates how a Chapter 13 works to improve your monthly budget, your credit score and has the potential to provide significant debt reduction.
Chapter 13 Scenario – Monthly Budget and Debt Reduction Potential
- Example: Household family of 3 that got behind on their mortgage while trying to negotiate a loan modification with their mortgage company. Due to the drop in the value of their home, they are paying more each month than what their house is worth.
| Monthly Income (after taxes): | $5,100.00 | |
| Current Total Debt Load | Balance Owed: | Terms: |
| First Mortgage | $176,000.00 | 6% interest over 30 years |
| Second Mortgage | $44,000.00 | 9% interest over 20 years |
| Vehicle loan 1 | $15,000.00 | 6.5% over 5 years |
| Vehicle loan 2 | $19,000.00 | 7.5% over 5 years |
| Credit card & medical bills | $23,000.00 | average rate: 12% |
| TOTAL DEBT: | $277,000.00 | |
| Current Monthly Budget |
Chapter 13 Budget - 60 month plan |
|
| First Mortgage Payment to catch up 1st Mortgage |
$1,263.00 | $1,263.00 $ 100.00 |
| Second Mortgage | $395.00 | $0 |
| Vehicle 1 Payment | $293.00 | $293.00 |
| Vehicle 2 Payment | $381.00 | $271.00 |
| Gas & Maintenance | $650.00 | $650.00 |
| Groceries | $650.00 | $650.00 |
| Household goods & supplies | $125.00 | $125.00 |
| Utilities | $250.00 | $250.00 |
| Medical & dental expenses | $50.00 | $50.00 |
| Insurance (Auto & Medical) | $300.00 | $300.00 |
| Clothing and other living expenses | $400.00 | $400.00 |
| Misc. | $100.00 | $100.00 |
| Minimum payment on credit card/medical debt |
$350.00 | $0 |
| MONTHLY EXPENDITURES: | $5,207.00 | $ 4,452.00 |
| Income | $5,100.00 | $ 5,100.00 |
| Difference | $(107.00) Gaining further debt |
$648.00 Chapter 13 Plan Payment |
| Debt Load after 60 Month Plan | Current | Chapter 13 |
| First Mortgage | $169,358.00 | $163,775.00 |
| Second Mortgage | $39,031.00 | $0 |
| Vehicle loan 1 | $0 | $0 |
| Vehicle loan 2 | $0 | $0 |
| Credit card & medical bills | $23,000.00 | $0 |
| Additional debt accrued by unbalanced budget |
$6,420.00 | $0 |
| TOTAL DEBT AFTER 60 MONTHS | $237,809.00 | $163,775.00 |
| Savings vs. trying to pay bills on your own, pursuant to agreements |
$74,034.00 | |
| Reduction in debt load vs. prior to filing |
$113,325.00 |
Summary of Benefits upon Completion of Chapter 13 Plan:
- Now have $648.00 available in monthly budget to save or use for other purchases
- Credit improved 36 - 60 month track record of timely payments and reduced debt-to-income ratio
- Reduced debt by over $113,000 over the course of the program
- Legally eliminate over 50% of unsecured debt at the completion of the program
- Court protection from your creditors while you are in repayment plan. This means no calls, no law suits, etc.
Let Us Evaluate Your Finances
This hypothetical scenario is presented to describe a few of the potential benefits of a Chapter 13. We offer free consultations to help you better understand what the specific benefits would be for your personal finances Schedule an appointment with one our licensed and experienced attorneys to discuss how to get you finances on the right track. We are dedicated to providing the best quality representation and expert legal advice. Call us today at 866-261-8282. We look forward to speaking with you.
