Chapter 13 as a Home Equity Loan?
Chapter 13 can serve the same purpose as a home equity loan. If you are unable to get a home equity loan or refinance, you can use Chapter 13 instead to achieve nearly identical goals. The only restriction is that the “loan” (the case) would need to be paid back within 5 years.
Chapter 13 When You Cannot Refinance
Chapter 13 can help in situations where you cannot get a home equity loan due to bad credit. You know you could get out of your debt situation if you could only refinance or get a home equity loan. However, when debts get too high or behind, your credit can prevent you from getting the home equity loan you desperately need.
Chapter 13 can always be filed regardless of your credit situation. This will allow you to pay off all your debt through the Chapter 13. Sometimes you do not even need to pay back 100% of your debt. You can use Chapter 13 the same way you would use a home equity loan to pay off your debts. The only restriction is that the Chapter 13 “version” of a home-equity-style loan must be paid off within 5 years (60 months) at a maximum. However, the benefit is very obvious: you will no longer have any additional loan on the house after the 5 years or less is completed.
Chapter 13 When You Have Too Much Equity
Some people have enough equity to get a home equity loan. They just simply do not have enough credit. In these cases, you may also have too much equity in the house also to simply file Chapter 7. This is where Chapter 13 can especially serve as a makeshift “home equity” style loan.
Chapter 13, of course, is not a typical “loan.” It is not a loan at all. It is instead a repayment plan that any person can file regardless of credit. You can essentially enter a 5-year repayment plan that would serve in many ways similar to a 5-year home equity loan, no matter what your credit level. However, you would just be paying the debt back over time instead of instantly with loan proceeds. Once again, the advantage would be that the no “loan” would exist after the 5 years. Remember, most mortgages and home equity loans in contrast are for a 15-30 year time period.
Is There a Down-Side to Chapter 13?
There is really no downside to Chapter 13 in such a situation except for the fact that the 5-year period may be too short. For some people, this may result in too high of required repayment level. It may be too hard to pay some Chapter 13 amounts back with too low of income. In such cases, a longer payment period than what is possible in Chapter 13 would be preferred. Most people would prefer to only have a “home equity loan” for five years. Then, they would not be saddled with new, long-term debt. Income levels, however, can sometimes make Chapter 13 too difficult in rare cases where income is simply too low to address the debt.
Read on about Chapter 13 Bankruptcy in Indiana here.
