Car Repossessions on the Rise!

I do not usually employ scare tactics when discussing bankruptcy. Quite honestly, it only perpetuates the fears and anxieties that people have about bankruptcy, causing a stalling effect in many situations. When people are faced with an emergency, they need to move swiftly and remove barriers for addressing the emergency. With the pandemic lingering into its 11th month, unemployment claims are expected to rise again and new jobs reporting looks bleak. The $600 stimulus check for many families is simply not going to be enough to keep afloat. Financial emergencies are going to be on the rise.

One emergency that is likely to proliferate in 2021, car repossessions. Car lenders have run out of patience (0r maybe compassion) and have jumpstarted vehicle repossessions for defaulted car loans.

You could also cure the default, but chances are you don't have the funds available to do so. A Chapter 13 bankruptcy allows a borrower to retain the vehicle and pay for it in a 3-5 year repayment plan.

1. Reduce Interest Rate. Interest rates on car loans can be as high as 18%, which can add thousands to the amount owed on a loan. In a Chapter 13, you can reduce the interest rate to the prime rate plus 2%. For many, this reduction saves thousands of dollars. You would never have this option outside of a bankruptcy unless you refinanced the loan.
2. Cramdown. If the car loan was obtained more than 910 days before you filed your bankruptcy, then you can do a cramdown, meaning that you pay only the value of your vehicle instead of the amount owed. For example: Let's say you owe $10,000 on your car loan, but your vehicle is worth only $5,000. You would pay $5,000 instead of $10,000. For many people who are underwater on their cars, this can be a huge benefit.
3. Effectively Reduce Your Monthly Car Payment. Let's say that your current vehicle payment is $400/month. You have 24 months remaining, meaning you still owe $9,600 on the remaining months. You are behind 5 months, meaning you have an arrearage of $2,000 for a total due and owing of $11,600. In a Chapter 13, you can effectively spread that payment over a 3-5 year plan (or 36 to 60 months). Spread over 36 months, the modified monthly amount would be $325. Spread over 60 months, the modified monthly amount would be $195. You would never have this option outside of a bankruptcy unless you refinanced the loan.
4. Cure Default. You can catch your car loan up through your Chapter 13 repayment plan. You cannot do this in a Chapter 7 bankruptcy.
5. Stop a Repossession. Once your bankruptcy is filed, something called the automatic stay goes into effect and puts you and your assets into a protective bubble, meaning the car lender cannot repossess your vehicle.
6. Protect Co-Debtors. The automatic stay extends to co-debtors, meaning anyone who cosigned the car loan is also protected.
7. Get Your Car Back. Even if your vehicle has been repossessed, you can get it back if you file Chapter 13 bankruptcy before the vehicle is sold at auction.
8. Handle All of Your Debt. By filing bankruptcy, you are able to handle all of your creditors in one place and at one time. From a mental and emotional standpoint, you no longer have to expend the energy juggling all of your debt.

Instead of worrying what will come next, meet with a bankruptcy attorney to discover your options tailored to your situation.

Chapter 13 Bankruptcy: A Helpful Tool

When the foreclosure moratorium ends at the end of this month, thousands of individuals will be faced with the stark reality that a foreclosure is looming.

In addition, many forbearance programs, a process where a lender agrees that an individual doesn't have to make a payment for a period of time, will also be expiring soon. Individuals who communicated with their lender to ensure that they didn't have to make monthly mortgage payments may have been given wrong or misleading information. Some lenders are putting the payments that should have been made on the back-end of the loan, effectively extending the loan. However, some lenders will be requesting a lump sum equal to the payments that would have been due and owing up front once the forbearance ends.

Here is how a Chapter 13 bankruptcy can help you in Nebraska:

1. Stop Foreclosure. With the bankruptcy being filed, you enter the protective bubble called the automatic stay. Creditors must stop the foreclosure process the second your bankruptcy is filed. You then can bring your mortgage current through your plan.
2. 3-5 Year Plan. You put forth a plan that lasts 3-5 years. At the end of the plan, you are debt free!
3. Handle Creditors Unwilling to Work with You. Creditors are essentially dragged into your bankruptcy. A creditor has 70 days to file a claim. If they don’t, they don’t get any payments and are eliminated 100%.
4. Easy Wage Withholding. If you’re employed, the plan payment is made from a wage withholding, meaning you no longer have to run around each month trying to figure out how and when you are going to make payments on your debt.
5. Asset Protection. Creditors can’t take your property, garnish your wages, or repossess a vehicle while you are in the bankruptcy making plan payments. You retain your property.
6. Protect Co-debtors. The Ch. 13 automatic stay extends to co-signors or guarantors on your debt.
7. Eliminate Non-Support Obligations. In a Ch. 13 bankruptcy you can eliminate non-support obligations stemming from a divorce decree. If you are left paying a property settlement but no longer have the funds or income to do so, a Chapter 13 may be a great solution.
8. Cram down a Car Loan. If you owe more than your vehicle is worth and you acquired the car more than 910 days ago, you can do what is called a cram down, meaning you only pay what the vehicle is worth in your plan instead of what is owed.
9. Pay Only a Percentage of Debt Back. In many cases, you only end up paying a percentage of your general unsecured debt (i.e. credit cards and medical bills) back. For example: You have $100,000 of credit card debt. You may only pay 50% or $50,000 back. The other 50% gets eliminated (discharges) at the end of your plan.

Instead of worrying what will come next, meet with a bankruptcy attorney to discover your options tailored to your situation.

When to File Chapter 13 Bankruptcy in Nebraska

Figuring out when is the best time to file for Chapter 13 bankruptcy doesn’t have to be hard. In many situations, the person dealing with financial distress has been trying to figure out how to handle their debt for months or even years. The person is constantly juggling money, deadlines, and how they’re going to get it all accomplished. Chapter 13 bankruptcy exists as a solution to allow people in Nebraska to consolidate debt and handle it all in one place at one time. The creditors get dragged into the bankruptcy system and must partake in the 3-5-year repayment plan.

There are some factors to evaluate when figuring out whether Chapter 13 bankruptcy is a viable solution for the financially distressed Nebraskan.

1. Good Income, But Not Enough. You always pay your debt on time, but you run into a situation where you never get ahead. The Debt continues to grow with no sign of stopping. On paper, you make good income, but it is not enough to pay down your debt or to build any savings. The Chapter 13 bankruptcy is largely based upon your disposable monthly income or excess monthly income, basically the amount of money you have left over ever month after considering general living expenses.
2. Temporary or Permanent Reduction of Income. You were out of work for a short period of time or now have taken a new job with a significant pay cut. Your income no longer stretches as far as it used to, and you have fallen behind on your bills. You do not have an ability to catch up or get ahead.
3. Behind on Mortgage or Car Loan. For whatever reason, divorce, job loss, death of a love one, etc., you have fallen behind on your mortgage or car loan. You’ve tried to complete the loss mitigation packet with your mortgage company and have gotten nowhere. You’ve tried to work out a deal with your car lender, but they want too much. The Chapter 13 bankruptcy allows you to cure the arrears, the amount you have fallen behind in your 3-5-year repayment plan.
4. Tax Debt. You have recent income tax debt or other tax debt that you cannot afford to resolve through a repayment plan. You can resolve your tax debt by handling it through a Chapter 13 bankruptcy.
5. Status Quo Keeps You in Debt Cycle. Iusually spend some time comparing the Chapter 13 bankruptcy with the alternative, which is the status quo. I call it the “do nothing” approach. You always have the option of doing nothing other than what you’re currently doing. However, there is typically no clear light at the end of the tunnel with this option. For example: I had a client who was faced with $2,500 per month in minimum monthly payments. In a Ch. 13 she was able to repay 100% of her debt through a 5-year repayment plan making monthly payments of $1,000 and will be debt free at the end of the Chapter 13 plan.
6. Asset Retention. In a Chapter 13 bankruptcy, you keep your property. The plan is funded through post-filing excess/disposable income. Pause before you start liquidating your retirement accounts or other assets before considering Chapter 13 bankruptcy as a viable solution to handle your debt. I have seen countless times where a client liquidates assets to handle debt when they could have retained the asset and still handled the debt.
7. Accelerated Debt Recovery. If you successfully complete your repayment plan, you are debt free in 3-5 years. That is a much better situation than paying minimum payments on credit cards indefinitely. I frequently am asked, “how will bankruptcy negatively impact me?” I usually respond with the fact that a Chapter 13 bankruptcy puts you in a better position financially quicker than if you were trying to resolve this with another non-bankruptcy solution.
8. Creditors Must Participate. The bankruptcy automatic stay, the provision in the bankruptcy laws that protects you, prohibits creditors from attempting to collect a debt directly from you. What that means is that all the phone calls, collection efforts, and lawsuit stop. The general unsecured creditors (i.e. medical bills, credit cards, consolidation loans, etc.) must file a claim within 70 days of your case being filed in order to participate in the distribution. If they snooze, they lose. Also, it is a lot easier to deal with all your creditors in one place instead of scattered all over the place.
9. Stop Garnishments. The garnishment laws in Nebraska allow for 15% to 25% of your gross adjusted wages to be garnished. For some people, this involuntary repayment of debt causes you to default on your other debt such as your house or car. It creates a domino effect. You can get into a Chapter 13 to stop the garnishment and propose a repayment plan based upon your budget as opposed to an unforgiving percentage of your income.

Deciding whether to file a bankruptcy is a complex and emotional decision. Finding the right attorney to work with you to make that decision is crucial. Instead of worrying what will come next, you should meet with a bankruptcy attorney to discover your options for dealing with your financial situation.

Chapter 7 Bankruptcy: Five Common Misconceptions

1. Chapter 7 bankruptcy will ruin my credit for 7 years

It is true that the bankruptcy is reported for up to 7 years after you file your bankruptcy. However, it does not negatively affect you for that long. At the end of your Chapter 7 bankruptcy, you will be debt free (with some exceptions like student loans), which positively impacts your credit. I’ve had clients finance car and home purchases without issue after their bankruptcy cases.

2. I’m going to lose my house and car

This almost never occurs . In Nebraska, you can protect and keep your home as long as you are current on payments when you file and your home has $60,000 or less in equity.

As for your car, you can retain and keep it, if you’re current on payments and your vehicle has less than $10,000 in equity. This is because in Nebraska, you can use the vehicle exemption, which is $5,000, and the wild card exemption, which is $5,000, to protect one vehicle. For a couple filing the Chapter 7 bankruptcy jointly, those amounts can be doubled.

3. Filing bankruptcy is only for people that are behind on making payments

You don’t have to be behind to file bankruptcy. Actually, the best time to look into whether to file is prior to or soon after defaulting on payments.

Example: Your monthly minimum payments are $1,000. You were able to keep up with the payments until your former girlfriend decided she was going to move out. With less income coming into your household, you won’t be able to make next month’s credit card payments.

4. I make too much money to file Chapter 7 bankruptcy

The bankruptcy law includes something called the Means Test, which takes an average of your monthly income for the last six (6) months from all sources (excluding Social Security income), annualizes it (multiplies by 12), and compares it to the median income for your household size. If you’re below the median, you are good to go with a Chapter 7 bankruptcy. If you are above median, you usually are not. However, the Means Test has a 2^nd step if you’re above median income that takes into account qualified and allowed expenses (i.e. child support payments, taxes, child care, etc.). Sometimes you may still qualify for a Chapter 7 bankruptcy after this 2^nd step even though initially your income was “too high”.

5. If I file, my spouse has to file bankruptcy with me

You are allowed to file a bankruptcy without your spouse. Sometimes this makes a lot of sense. Two common scenarios are when your debt was incurred prior to marriage or you have business-related debt that is only in your name. If you are married and decide to file Chapter 7 bankruptcy without your spouse, you may still have to provide your spouse’s income and assets. However, your spouse’s identifying information, such as Social Security number and name do not have to be disclosed.

There is a lot of misinformation and fear on the internet regarding Chapter 7 bankruptcy, much of which is false and keeps people from using a viable solution to address their debts and move forward.

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Learn more about Chapter 7 bankruptcy.

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When Filing Chapter 13 Bankruptcy Makes Sense

A chapter 13 bankruptcy, which involves a 3-5 year repayment plan, is almost always a better option for the financially distressed than the current status quo.

I use the analogy of the ever-growing gobstopper. Without filing bankruptcy, you pay your monthly minimum payments on your credit cards. Because you’ve made those payments, you end up running out of disposable cash before your next paycheck. As a result, you use your credit cards again to pay for basic living expenses.

For example: Your monthly minimum credit card payments are $950. A large chunk of that goes towards interest. Before your next pay day, you run out of cash and have to charge $950 for new tires and summer soccer registration for your kids. The gobstopper is bigger the next month even though you started it off by taking a big chomp out of it. On top of paying those monthly minimum credit card payments, you have a monthly vehicle payments totaling $400, medical bills totaling $150 per month, and a monthly student loan payment of $400. You pay $1,900 per month on debt, but are not getting anywhere.  You make $4,500 take-home pay per month, but feel as though you are living paycheck to paycheck.

You may never reach a point where you are unable to pay your minimum payments. However, if you look at the back of your credit card statement, you will find a little section that shows you how much you will eventually pay in interest and how long it will take to pay off the balance interest if you only pay the minimums, assuming you make no new purchases.

Now let’s add some more layers and see what a Ch. 13 bankruptcy would do in this scenario:

• You owe $21,000 on a car loan, which includes the total interest you would pay over the lifetime of the loan
• You owe $5,000 in medical debt
• You owe $15,000 on credit cards
• The estimated attorney’s fees to be paid in your Ch. 13 is $4,000
• The Chapter 13 Trustee receives up to 10% of the payout, which is $4,500
• If you were to pay 100% of all of your debt back, the total payment would be $45,000, which can be paid over 5 years.
• The monthly payment would be $750/month for 60 months.
• Even adding the student loan payment of $400 only brings the monthly total to $1,150, which is much better than paying $1,900/month.

The benefits of filing are that:

1. You can pay for your financed and leased vehicles through your Chapter 13 bankruptcy.
2. You keep all of your property even if that property is not exempt and would be liquidated in a Chapter 7 bankruptcy.
3. You can be debt free in 3-5 years.
4. You pay most of your attorney’s fees through the plan.
5. You typically pay less than 100% of unsecured debt through the plan without interest. The unsecured debt you don’t pay gets discharged (eliminated) at the end of your plan with some exceptions like student loans and some tax debt. If, through your plan, you only paid 50% of your credit card and medical debt, the other 50% would be discharged, meaning you would not be liable for paying that once you made your last plan payment.
6. You keep making your monthly mortgage payments directly to your mortgage company.
7. You make one payment a month that handles all of your debt (except for your mortgage payment and student loan payments). In most cases that payment is paid directly from your paycheck, which is convenient and stress-free.

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Bankruptcy: A Fresh Start

You walk out of your house in the morning to find that your vehicle is not in the driveway. You look again, discovering that it has not suddenly reappeared. Bewildered, a multitude of thoughts rush through your head. Was it stolen? Did it get repossessed? How will I get to work? What do I do now?

You just started your new job after being unemployed for several months. During that time, you fell behind on your bills, using up most of your savings and cashing out a retirement account. You had to decide whether to make your car loan payment or feed your kids. You chose the latter. Your ex-spouse only sporadically pays the court-ordered child support payment of $500. He now owes you close to $60,000.

You’re the responsible one. You juggle it all. You’re doing the best you can.

For the last couple of months your phone has been blowing up nonstop with calls from creditors. Past-due notices and final requests are stockpiled on your kitchen table. Each dollar and debt is tracked on a notepad. You have been figuring out how you could make this all work. It is overwhelming.

You walk back inside and look for your car loan statement to find a number to call because you’re worst fear has come true, your car lender repossessed your car. You know exactly where it is. The person on the other side of the phone explains that you can cure your car loan with a $2,500.00 payment today. You don’t receive your first paycheck for two weeks and have $1,000 in your bank account, the last remaining from your tax refund. You have rent, utilities, and groceries to pay for, which will eat up that money.

You are not alone. In the first three months of 2017, 966 bankruptcy cases were filed in Nebraska. The reasons for filing a bankruptcy run the gambit from overwhelming medical debt to a sudden loss of income. Considering bankruptcy is a smart decision if you are having difficulty paying your debt on top of your monthly living expenses, including items such as your rent, mortgage, groceries, and car insurance.

You may qualify to file a Chapter 13 where you retain all of your property and pay some or all of your debts though a payment plan that lasts 3-5 years. A Chapter 13 can help you save your car or house if you have fallen behind. You may qualify to pay only a portion of your unsecured debt (medical bills and credit cards) without interest, which is a paramount benefit of the Chapter 13 bankruptcy.

You may qualify to file a Chapter 7 where you can keep all of your property and eliminate all of your debt with some exceptions like student loans, child support, and most tax debt. By filing a Chapter 7, you would receive the benefit of a fresh financial start, allowing you to move on to rebuild your credit sooner rather than later.

Deciding whether to file a bankruptcy is a complex and emotional decision. Finding the right attorney to work with you to make that decision is crucial. Instead of worrying what will come next, you should meet with a bankruptcy attorney to discover your options for dealing with your financial situation.

You’re not in this alone.

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