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Can A Bankruptcy Save Your House From Foreclosure?

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 foreclosure.

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).

  • ABC News
  • American Civil Liberties Union
  • CBS 4
  • CNN
  • Daily Business Review
  • Florida Trend's - Florida Legal Elite 2014
  • Florida Trend's - Florida Legal Elite 2014
  • National Association of Consumer Advocates
  • National Association of Consumer Bankruptcy Attorneys
  • NBC News
  • National Consumer Law Center
  • The New York Times
  • Avvo
  • Avvo
  • Avvo
  • Avvo
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