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Filing Chapter 13 bankruptcy allows you to restructure your debts into an affordable monthly payment plan. In most cases, all your debts are included in your plan except for your mortgage payment. Therefore, you have your mortgage payment, Chapter 13 plan payment, and living expenses to pay each month. 

For individuals who do not meet the income limits for Chapter 7 bankruptcy, a Chapter 13 bankruptcy filing may be the best way to get out of debt while keeping their property. However, there are some considerations that you may want to discuss with a bankruptcy lawyer before filing Chapter 13. Your specific circumstances dictate the specific factors you need to consider before filing bankruptcy. 

Three common considerations that you should address before filing a Chapter 13 bankruptcy case are:

1.  Moving and Renting during Chapter 13 Bankruptcy

Can you afford where you are living now? If not, you may need to move. Some debtors choose to surrender their homes in Chapter 13 instead of continuing to pay the mortgage payments. If so, you may want to move before filing bankruptcy. It is possible to find a rental home while you are in Chapter 13, but it could be more challenging. Other debtors may choose to sell their home before filing Chapter 13.

However, talk with your bankruptcy lawyer first. If the mortgage lender has not filed foreclosure, you could live in your home for several months after filing Chapter 13 without a house payment or rent payment. It could take up to six months or longer for a mortgage company to complete a foreclosure sale after you stop making mortgage payments. It depends on your state’s foreclosure laws and the mortgage lender.

During that time, you could put the money you would pay for a mortgage payment or rent payment into a savings account. Having an emergency savings account can help you avoid financial problems in the future when an emergency or sudden expense arises. Your bankruptcy lawyer can help you weigh your options and develop a timeline for moving before or after filing a Chapter 13 bankruptcy case.

2.  Purchasing a Home in Chapter 13 Bankruptcy

Purchasing a home during a Chapter 13 bankruptcy case is a complicated process. Most debtors do not qualify for a new mortgage while in a Chapter 13 bankruptcy case. If you were approved for a mortgage in Chapter 13, it would probably be at a high interest rate, and you would need bankruptcy court approval, which can also be challenging to obtain.

Therefore, if you have been searching for a home, you may want to complete the purchase before you file for bankruptcy. If you wait until after you complete your bankruptcy case, you could face waiting periods before you can qualify for government-backed mortgages. However, buying a home before filing
Chapter 13 may not be the right choice for you.

The pros and cons of buying a home before filing Chapter 13 depend on your specific situation. A bankruptcy lawyer analyzes your entire financial situation to help you weigh the pros and cons. Only then can you determine what path will give you the best chance of succeeding in your Chapter 13 case, while giving you the best foundation for rebuilding financial wellbeing after the bankruptcy case closes. 

3.  Purchasing a Vehicle in Chapter 13 Bankruptcy

Purchasing a vehicle before filing Chapter 13 might be a good idea if your current vehicle is old and may need expensive repairs. You can purchase a vehicle during a Chapter 13 case, but you must gain court approval. There is no guarantee that the court will approve your request. Therefore, some people purchase a car before they file for bankruptcy relief. 

If you decide to purchase a vehicle, do not overspend. You will not be able to reduce the amount you owe on the car when you file Chapter 13 because you just purchased the vehicle. Your payments could go up if you financed the car for seven years, and the payment is included in your Chapter 13 plan. Chapter 13 plans are limited to 60 months.

If you need to purchase a vehicle before filing Chapter 13, it is best to finance the vehicle for no more than 60 months. Also, talk with a bankruptcy lawyer before you purchase the vehicle. A bankruptcy lawyer calculates how much you can afford to pay each month for a car payment. You want to stay within a target amount that is not going to impact your Chapter 13 bankruptcy plan negatively. 

4) When Can You Start to Rebuild Credit After a Chapter 13 Bankruptcy Case?

Your credit rating impacts all aspects of your finances. Your credit score affects your ability to purchase a vehicle or home. Your credit record also impacts the ability to rent a home or apartment. Therefore, rebuilding credit after a Chapter 13 bankruptcy is a common concern for most Chapter 13 debtors.

You can begin rebuilding your credit during your Chapter 13 case. You cannot incur new debt, but you can make all payments on time during your Chapter 13 case. Make sure that your utility payments, rent payments, and mortgage payments are paid on time. 

As soon as your Chapter 13 case is closed and discharged, you can increase your efforts to improve credit after Chapter 13. A secured credit card may be one way to begin rebuilding credit.

A secured credit card is used like any other credit card, but it requires that you place a deposit with the credit card company to secure charges. Use the credit card and make the payments each month on time to improve your credit score after bankruptcy.

You may also want to consider other types of credit cards. However, do not overextend your budget. If you make any payment after the due date, you substantially hurt your credit score. Also, having too many credit cards reduces your debt-to-income ratio, which also hurts your credit score.

We provide tips for rebuilding your credit after bankruptcy in our article, “Life After Bankruptcy – Rebuilding Credit And Renting.”

Do You Want More Information About Filing Chapter 13 Bankruptcy?

If you are interested in a Chapter 13 bankruptcy, you can use our free bankruptcy calculator to estimate a Chapter 13 plan payment. We can also help you locate a Chapter 13 bankruptcy lawyer near you that provides free bankruptcy consultations.

Our goal is to help you find a debt relief option that works for you. Contact us now to discuss bankruptcy and other debt-relief options. We want to help you get your finances under control so that you can begin realizing your dreams for your future. Call us at 833-272-3631 now. We provide our services free of charge.

Post Author: Ben Tejes

Ben Tejes is a co-founder and CEO of Ascend Finance. Before Ascend, Ben held various executive roles at personal finance companies. Ben specializes in Chapter 13 Bankruptcy, Debt Settlement, Chapter 7 Bankruptcy and debt payoff methods. In his free time, Ben enjoys spending time going on adventures with his wife and three young daughters.

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