How to Save Your Home with Chapter 13 Bankruptcy
If you have missed mortgage payments (arrears), a lender may be threatening to foreclose on your home. Chapter 13 bankruptcy creates a three- to five-year payment plan to pay off missed mortgage payments and catch up on your current payments. You can keep your home if payments are made on time.
How Does Chapter 13 Bankruptcy Help?Chapter 13 bankruptcy has several benefits. After you file, it can enable you to:
Repay missed arrears over time: You can arrange a repayment plan with your mortgage servicer. Typically, Chapter 13 bankruptcy enables you to establish a plan that lasts anywhere from three to five years. It gives you time to get your mortgage current. If your mortgage isn*t current and you*re otherwise in good financial standing, contact your lender to see if they*re willing to work out a deal, before filing for bankruptcy.
Pay a fraction of or eliminate unsecured debts: With these debts reduced or eliminated, you free up cash to pay the mortgage. Chapter 13 bankruptcy requires you to apply disposable income to paying off your debts, in addition to any back taxes. Unsecured debt that remains after the three- to five-year term is discharged, except for student loans, child support, and other debt exempt from bankruptcy laws.
Ask the court to reduce certain types of secured debts: A judge may reduce some types of secured debts, such as those related to your automobile, to the market value of that collateral. Interest rates may be reduced to the going rate as well. Reduced payments may mean more money to pay towards a mortgage. A court may also cram down debt for cars purchased at least 30 months (910 days) prior to a bankruptcy filing, rental or vacation homes, or personal property such as computers, jewelry, or furniture purchased at least a year prior to your filing date.
Contest the legality of a foreclosure: The bankruptcy court can investigate whether a proposed foreclosure is legitimate. Perhaps the loan servicer was in error and misjudged the facts of why foreclosure was being sought. For example, you can contest that the mortgage servicer failed to properly credit your payments. If the court decides in your favor, the basis for foreclosure would be eliminated, particularly if you convert a Chapter 13 to a Chapter 7 bankruptcy case later.
Turn your second/third mortgage into an unsecured debt: Homeowners often apply for a second mortgage to cover their down payment, and even a third mortgage to acquire a home equity line of credit. If you*ve fallen behind on your first mortgage, most likely you*ve done so on these too. Chapter 13 bankruptcy enables you to eliminate mortgages not secured by your home*s value. By reclassifying them as unsecured debts, you*re required to pay only a portion of these based on your disposable income. You may also get rid of liens on your home (from second and third mortgages) if they*re unsecured by the property.
How Do I Get Caught Up on My Mortgage?Continue making regular payments to your mortgage lender if you want to keep your home. A discharge won*t eliminate the lien on your property, unless you*re stripping a wholly unsecured second mortgage from it. Depending on the court decision and your jurisdiction, you will make payments directly to the lender or the bankruptcy trustee. You typically have three to five years to catch up on missed payments under a Chapter 13 plan, while meeting your current mortgage obligations.
If you continue to miss mortgage payments after filing for Chapter 13 bankruptcy, your lender can take action against you. They may file a motion with the bankruptcy court, and request the automatic stay to be lifted. This means collection actions could resume and the usual Chapter 13 benefits would not apply, including the luxury of keeping your home.
A creditor may request an automatic stay be lifted if you*re behind on mortgage payments, automobile payments, or have delayed paying creditors while in a Chapter 13 plan. Such action may also be taken if you fail to keep your home or vehicle insured or your creditor holds a non-dischargeable debt and is seeking permission to collect it. In other words, alimony, child support, or criminal restitution could still be collected as these are not wiped out by bankruptcy.
An attorney can help determine whether you should file for bankruptcy and which type of bankruptcy is right for you. They can also help negotiate the process and explain the rights provided by filing for bankruptcy protection. At OakTree Law, we can help you understand all the details of your Chapter 13 bankruptcy, stop all foreclosure procedures, and protect your property and possessions from a forced sale. Call us today or request a free evaluation to get started.