For many New York retirees, filing a Chapter 13 bankruptcy could be a prudent financial move, and this is particularly true if they have capitalized on their home’s value by taking out second or third mortgages or home equity lines of credit. This is because a Chapter 13 bankruptcy can in some cases strip away the liens placed against their property by these loans while protecting their retirement investments.
However, the balance on the first mortgage must exceed the home’s value for liens to be stripped in this way, but plummeting home values that followed the 2008 financial crisis has put many homeowners in this position. While many people may struggle to qualify for Chapter 7 due to the means test, the Social Security benefits and retirement accounts that provide many retirees with their income are protected and not considered when these calculations are made.
Retirees may also be insulated against the impact of declining credit scores following bankruptcy because they have already purchased their home and may be unlikely to face situations where they would need to borrow significant amounts. However, creditors may sometimes object to a bankruptcy if they believe the debtor has the funds available to make the required payments or the filing is a strategy designed purely to escape debts.
An experienced bankruptcy attorney may explain the situations where a Chapter 13 bankruptcy would be appropriate for those with unmanageable debts. While stripping liens from a primary residence may be one such situation, filing a Chapter 13 may also be prudent for those who do not qualify for a Chapter 7 bankruptcy because of their current income. An attorney could also explain that filing for either form of consumer bankruptcy might put an end to creditor harassment.