Spring Cleaning After Divorce

The long and cold Chicago winter has finally ended and spring is here. For many, this means a lot of thorough spring cleaning of their homes, garages, and gardens. Whether it’s cleaning every corner of your house, organizing your tools in the garage, throwing away unnecessary items, or deleting old files from your hard drive, it’s that season again. You spend extra time, effort and money cleaning your house and caring for your lawn. Why? Because there is great satisfaction gained from spring cleaning and it’s a nice fresh start to the summer season.

If you recently went through a divorce, your life probably seems very disorganized and muddy. Getting rid of the disorganization, clutter and muddiness that is stuck in your mind and heart is a way to take charge and reclaim your life. You can then be ready to embrace life, whatever comes your way. Get organized, tidy up and avoid any overflow of emotional junk. This way the focus is on you.
Divorce often leaves people with a head full of negative thoughts; bad self-beliefs and feelings of disappointment. The experience is exhausting, clogs your head and makes it very difficult to move forward. However, spring is a perfect time to take the duster and clean up the mess. Take some time alone to take care of yourself and start being positive.

Your past can ruin any shot of you moving forward. Get rid of anything around you or around your house that signifies bad memories from your divorce or past. Remodel a room in your house, treat yourself to some pieces of furniture or decorative accessories, put up new photos of your friends and family. There’s a great quote that highlights this: “To have a good future you have to learn from the past and focus on the present.”
Once your mind, heart and past are cleaned up, you will be ready to embrace your fresh new start in life. There is no time like the present.

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Lien Stripping

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The previous article touched upon the process of removing a second mortgage from a home in a Chapter 13 case. This process is called “lien stripping” and works as follows. If a debtor has a second mortgage and the house is underwater (meaning that the value of the home is LESS than the amount of the first mortgage), the Chapter 13 plan allows that mortgage to be “stripped” from the home. That debt is then placed into a general unsecured pot and is paid cents on a dollar over the next three or five years. After the debtor successfully completes all the payments on the plan, the remaining balance on the second mortgage is discharged, along with the other unsecured debt, and the lien on the home is extinguished.

For example, the Smiths’ home is valued at $150,000 and the balance remaining on the first mortgage is $175,000. The Smiths’ also have a home equity line of credit with a balance of $40,000. Since the balance on the first mortgage is more than what the home is worth, the Smiths can propose a plan to strip the second mortgage. If successful, the second mortgage is turned into an unsecured debt and will be lumped together with other unsecured debt, such as credit cards. That whole unsecured debt will then be paid on a percentage basis. The percentage paid to the unsecured debts will depend on numerous factors but it basically boils down to how much “disposable income” the debtor has left each month after paying expenses, multiplied by 36 or 60 months. That percentage is determined on a case by case basis.

After successfully completing a Chapter 13 plan, the second mortgage lien will be removed from the Debtor’s home. Not everyone will qualify for “lien stripping”. That’s why it is very important to have your situation looked at by a competent attorney. Give attorney Artur Zadrozny a call at 312-375-1704 to set up an appointment.

Chapter 7 v Chapter 13

Once individuals decide they need bankruptcy relief, the next question usually is: what kind of bankruptcy is the best option for me? People know about Chapter 7 or Chapter 13 but they are not clear what the difference between the two options is. First of all, the names Chapter 7 and Chapter 13 are simply the chapters found in Title 11 of the United States Code. Title 11 contains all the laws related to bankruptcy law. Think of Chapter 7 as the process of liquidation and Chapter 13 as the process of reorganization.

Chapter 7 – Once filed, the trustee appointed by the bankruptcy court takes the Debtor’s non-exempt assets, sells them, and payoffs of the unsecured creditors. In majority of Chapter 7 cases, the Debtors do not have any assets of value, their major debt is unsecured debt: such as credit cards, medical bills, or court judgments. Within three to four months of the filing, any qualified Debtor receives a discharge and all his or her debt is wiped out.

What if I have a house? Can I still keep it if I file for Chapter 7? That depends whether you have equity in the house or not. If your house is underwater and is secured by mortgages, the trustee will generally not bother with selling the house because there won’t be any funds left over after the sale. If there is equity, the trustee will sell the property, payoff the creditors, and if there are any funds left over, they will be turned over to the Debtor.

What if the house is underwater and I am late with my mortgage payments? In this situation you will have to continue to make mortgage payments if you want to stay in your home. Otherwise, there is nothing to stop the bank from filing a foreclosure action against you. If a foreclosure action was already filed before filing of the Chapter 7 case, the filing will only temporarily stop the foreclosure.

Chapter 13 – This is a reorganization form of bankruptcy where you reorganize your debts by paying the unsecured creditors a percentage of what you owe. The Debtor proposes a repayment plan that lasts three or five years during which time the Debtor makes monthly payments to the bankruptcy trustee. The trustee in turn disburses those funds to the creditors. If the Debtor is behind mortgage payments, Chapter 13 allows the debtor to become currents on the mortgage payments by including the mortgage arrears in the plan. The Chapter 13 plan also allows for the removing of a second mortgage if certain conditions are met. This process of “lien stripping” will be discussed in greater detail in the next article.

This was just a short overview of the differences between a Chapter 7 and Chapter 13. Each bankruptcy case is unique, with its different set of circumstances. Call attorney Artur Zadrozny today at 312-375-1704 to discuss your situation to see if bankruptcy is the answer for you.