This is the first post in a series of articles discussing the potential benefits of Chapter 13 bankruptcy for subprime borrowers. The term subprime refers to borrowers that are considered to pose a high risk of default because their credit is considered less than acceptable. Interest rates for subprime loans are typically much higher than rates that are offered to prime borrowers. Subprime borrowers often find themselves in a credit trap, where they are unable to manage payments on their high-interest credit cards, car loans, home loans, etc. Falling behind in payments can cause an increase in creditor collection efforts, and ultimately lead to repossession or foreclosure and sale of borrower assets. It is possible, however, for many subprime borrowers to protect their assets, manage their debts, and heal their credit through Chapter 13 bankruptcy. The goal of this series is to explain how Chapter 13 bankruptcy can benefit subprime borrowers. If you are considering filing bankruptcy, contact our office to schedule a consultation.
This series will review the following topics:
- How subprime borrowers benefit from the bankruptcy process
- How Chapter 13 can be used to “cramdown” an auto loan
- Additional benefits of cramming down a car loan
- How bankruptcy can save a home from foreclosure
- How Chapter 13 can “strip” mortgages from a Washington residence
- How the Chapter 13 process can assist one with high-interest rate debt
If you are struggling with subprime debt, it is important to understand how the Chapter 13 process may benefit you. First, for many subprime borrowers, Chapter 13 bankruptcy can provide relief from creditor collection actions, including harassing phone calls and legal actions. Unlike Chapter 7 bankruptcy, debtors can keep most of their assets through Chapter 13 and reduce their debt to manageable levels. Second, for borrowers who are past due on car payments, the process can prevent the bank from repossessing their vehicle. In addition, for those underwater on their vehicle loans, the loan amount may be reduced to the value of the car, known as “cramming down” the loan. Third, a debtor may also benefit from a lower interest rate on their already reduced auto loan, making ongoing payments much more affordable. Fourth, the Chapter 13 process can protect a debtor’s home from foreclosure and provide an opportunity to catch up on overdue payments over a period of time. Next, those with a second or even third mortgage who owe more than their home is worth may be able to eliminate the additional mortgages through Chapter 13 bankruptcy. Finally, high-interest credit card debt or other loans may be reduced to an affordable level and payments may be extended over a period of time to allow debtors to manage their finances successfully.
Many Washington residents struggle with subprime debt and have difficulty making ends meet. Chapter 13 bankruptcy may provide a reprieve from the stress of financial hardship. An experienced bankruptcy attorney can help you navigate the process. If you need assistance, contact my office to schedule a consultation with an Olympia lawyer. The firm also services the Thurston County cities of Lacey, Tumwater, and Yelm, the Pierce County cities of Tacoma, Puyallup, and Lakewood, the Lewis County cities of Centralia, and Chehalis, the King County cities of Seattle, Auburn, Bellevue, Burien, and Federal Way, as well as other areas in Washington, including Grays Harbor, Mason, Cowlitz, and Pacific Counties.