If you are behind on your mortgage but want to keep your house, it may
seem counterintuitive to file for bankruptcy. Most people associate bankruptcy
with getting rid of their debts; however, a Chapter 13 bankruptcy allows
homeowners to keep their arrears and pay off this debt over time to avoid
There are two types of bankruptcies that an individual can file: Chapter
7 bankruptcy, and Chapter 13 bankruptcy. In a Chapter 7 bankruptcy, the
debtor lists all of his or her debts and assets. The trustee in the bankruptcy
case can sell off some of the debtor’s assets to make payments towards
these debts. Any debts that aren’t covered by the sale of non-exempt
property will be wiped out after 90 days, and the debtor will no longer
owe any money toward them.
In a Chapter 13 bankruptcy, the debtor keeps all of his or her property.
In return, the debtor must make monthly payments to the trustee for a
period of three to five years. The trustee will take these payments and
distribute them to the debtor’s creditors.
During a Chapter 13 case, the debtor would list both the mortgage and the
mortgage arrears as a secured debt. The majority of the plan payments
the debtor makes will be distributed towards the arrears and the regular
payments. At the end of a successful Chapter 13 case, the mortgage arrears
will be paid off and the mortgage will be current, allowing the homeowner
to resume making normal mortgage payments.
A Chapter 13 case will stop a foreclosure lawsuit in its tracks. The mortgage
lender cannot continue with the foreclosure outside of the bankruptcy
case, and must accept regular mortgage payments and payments towards the
arrears from the trustee.
If, however, the Chapter 13 debtor stops making payments toward the mortgage
or is unable to afford a plan that would cover both the regular mortgage
payments and the arrears, the mortgage lender can file a motion and ask
the bankruptcy court to lift the automatic stay. The automatic stay is
what prevents the mortgage lender from moving forward with the foreclosure case.
For that reason, Chapter 13 cases require serious commitment. While these
cases allow homeowners facing foreclosure to come up with a plan to save
their home, the homeowner must also commit to making regular monthly payments
until the plan is complete. If the homeowner cannot make these payments,
the case can be dismissed and the homeowner will return to foreclosure.
If you want to keep your home and are considering filing for bankruptcy,
contact Loan Lawyers today. Our attorneys are experienced in both bankruptcy
and foreclosure, and can help you create the best plan to save your house.
To schedule a free, confidential consultation, contact Loan Lawyers by
calling (888) FIGHT-13 (344-4813).