A Chapter 13 bankruptcy denies creditors their rights. From the moment a debtor files a case, the bankruptcy code prohibits recovery of collateral, phone calls, and mail to debtors about contractual terms.
Chapter 13 bankruptcy prohibits a car lender from receiving the contractual monthly payment and interest rate. Chapter 13 bankruptcy denies a car lender’s their right to payment on the agreed upon date each month and in the contractual time limit. The bankruptcy code further prohibits calls or mail to the debtor or billing to the debtor. The code prohibits recovery of the secured collateral. The same holds true for all secured creditors with fixed term notes with a purchase money security interest.
In the case of a mortgage, the amount the debtor owes to the mortgage company at the time of filing will be disbursed to the mortgage company by the Chapter 13 trustee from the monthly payment.. However, the debtor has the responsibility of resuming the complete, timely mortgage payments after the filing date of the Chapter 13 trustee.
If the debtor fails to resume making mortgage payments, the judge dismisses the case or gives permission to the mortgage company to foreclose. It works similarly for rental properties, car leases, and furniture leases.
When it comes to general unsecured creditors, creditors who do not take collateral, such as for medical bills and credit card debt, the creditors may get zero or few pennies on the dollar for their full balance. They do not receive payment or interest until after the secured creditors are paid.
Secured creditors may receive their full balance. Sometimes, a creditor may only receive what the collateral was worth at the time the debtor filed the case. Whether the creditor gets the full balance or the collateral amount depends on the age of the loan.
Rules and Outcomes
The rules and outcomes for this vary, for example:
- Car loans may have to be three years old, but other types of loans may only be a year old.
- A secured creditor may only receive five to seven percent interest.
- A mortgage company gets no interest on the delinquency or arrearage.
- A landlord gets zero interest.
- A creditor of any lease arrangement gets zero interest for the back-owed money.
Knighten Law Firm understands first-hand the complexities and nuances of the Chapter 13 bankruptcy process. If you are a creditor looking for relief, contact us today for help.
