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What happens in chapter 13 with these?

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  • What happens in chapter 13 with these?

    Chapter 7 discharged earlier this year. Attorney thinks I should file a chapter 13 now for the mortgage (2nd part was not discharged) & student loans (6 figures). After the Ch5 it seems as though parts of my loans were bought by these junk debt companies. One contacted me shortly after the 5 was closed and I right away signed up for their repayment program because I was told by them I had to pay the entire balance or face wage garnishment. I signed up, because I did not have the money to pay off the balance. Of course they added thousands of dollars to the initial amount and I am stuck. There is a second company now hounding me for another portion of the loans and I have been trying to negotiate fees with them. Now there is a third company who I received a letter from who is claiming they own a portion of the loans as well. All this time I am still paying Navient for the rest of the balance.

    My question is if I file a chapter 13 how are those companies handled?

  • #2
    If you file a Chapter 13 before the time limit is over after a Chapter 7 discharge, it's referred to as a Chapter 20. It generally won't result in another discharge but will buy you some time.

    Federal student loans can't generally be discharged in bankruptcy unless you have some really extenuating circumstancs. Be ready to prove that there is no way you can pay your student loans and afford to live.

    If you do go this route, please make sure you have a very experienced lawyer who knows the likelihood of the outcome. The last thing you need is to go through this process because some newb just passed the bar and opened a storefront with their Google degree, and thought it sounded legit and wanted to give it a whirl.

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    • #3
      It may be that the lawyer is suggesting a Chap 13 to strip the second lien and pay the student loans over the life of the plan, not to discharge them. I'm assuming that the mortgage was discharged but the lien remains. Or did you reaffirm the mortgage?

      The advantage to using a Chap 13 to pay the student loans is that they will stop accruing interest and the payment should be more affordable. The payments you are making on the loans will stop and you will instead make plan payments to the trustee. The creditors will stop bothering you and will get paid by the trustee.
      ​​​​​​
      Last edited by LadyInTheRed; 08-11-2016, 12:09 PM.
      LadyInTheRed is in the black!
      Filed Chap 13 April 2010. Discharged May 2015.
      $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

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      • #4
        I did not reaffirm the mortgage yet, but, considering doing so because I need to stay put for the next 4-5 years. Then I would put the house on the market to sell.

        Do the rules for student loans apply to these junk debt companies as well? It seems they bought the loans and are now demanding full payment or the balance plus huge additional fees. It does not seem fair that they can do this.

        Does anyone know?

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        • #5
          Student loans remain student loans, even after they are sold. Filing Chap 13 will keep the junk debt buyers off your back because they will have to take a pro rata share of whatever your plan payment is. A Chap 13 payment is likely to be better than wage garnishment. The additional fees the current creditors are charging are probably allowed under the original loan contract. If not, you shouldn't agree to them in a payment plan. If you file a Chap 13 and they include additional fees in their claim that aren't allowed in the original contract, you should object to their claims.

          If your Chap 7 was discharged and your mortgage was not reaffirmed, your mortgage is discharged and will stay discharged. It is too late to reaffirm it. You don't want to reaffirm anyway! Reaffirming your mortgage is a terrible idea. As long as you stay current on payments, you can stay in your house. It is yours until you default, the mortgage holder forecloses and title changes hands after the foreclosure sale.

          It sounds like you have a second mortgage that is 100% underwater. If that is the case, your attorney wants you to file a Chap 13 to strip the lien. The Chap 7 discharged your personal liability for the loan, but the lien remains so the lender can foreclose if you default on payments. If that lien is stripped in a Chap 13, the holder of the no longer existing 2nd mortgage will not be able to do anything. Once you pay off your first mortgage, the house would be yours free and clear. If you wanted to sell it in 4-5 years, you would have only the first mortgage to pay off with sale proceeds.
          LadyInTheRed is in the black!
          Filed Chap 13 April 2010. Discharged May 2015.
          $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

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          • #6
            Thank you for the advise. Both loans were defaulted on & thought if I went into Chapter 13 (20) then I could reaffirm, stay and sell after 4-5 years.

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            • #7
              Sorry another question - what does the pro-rata share mean exactly? How is this decided?
              During our last meeting (few months ago) my attorney said I should file the 13 directly after the 7 ended. I wanted to wait a bit and see if I could get my bearings first. I am trying to work with the bank to save the house because if I will need to move out of the area & I have 2 children in high school here currently

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              • #8
                Pro-rata literally means proportional. It is just the way that the bankruptcy code dictates how the unsecured creditors are paid from the disposable income. So if your total disposable income is $100 and you have 3 creditors which you owe $500, $300, and $200 then they would receive $50, $30, and $20 respectively. That's because they each get a percentage based on how much of the total debt they represent.
                Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                Status: (Auto) Discharged and Closed! 5/10
                Visit My BKForum Blog: justbroke's Blog


                I am not an attorney. Any advice provided is not legal advice.

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