Chapter 13 Bankruptcy
A homeowner filing a Chapter 13 bankruptcy immediately puts a halt on a foreclosure because the court issues a stay, a legal order that restrains creditors, including your mortgage lender, from attempting to collect on any debt you owe. A homeowner’s reprieve from foreclosure will last until the end of the repayment period if the homeowner abides by the required payment plan approved by the court.
Chapter 13 Bankruptcy to Save Your Home
A Chapter 13 bankruptcy will allow a homeowner to keep their home only if they have enough income to make their current mortgage payment plus pay a portion of their arrears monthly. The bankruptcy court will only approve repayment plans that demonstrate an ability to not only make due on the plan payments but that also shows that other necessary monthly expenses can be covered as well, such as transportation, utilities, etc. In addition, some types of debt, like recent back taxes, must be paid off completely through the repayment plan. In order for the court to approve a repayment plan, the bankruptcy filer must have enough monthly income to cover all of these payments.
A typical repayment plan lasts from three to five years. If you are able to commit all of your disposable income to the repayment plan, the court will discharge the remainder of any unsecured debt at the end of that period. Some debts do survive though, such as student loans and child support.
Chapter 13 Bankruptcy to Delay a Foreclosure
Initially, after filing for a Chapter 13 bankruptcy, your foreclosure will be delayed for at least three months while the court reviews your repayment plan proposal. If the court approves your proposed plan then a foreclosure is postponed and possibly avoided if the filer meets the obligations of the repayment plan. In the case that the court does not ultimately approve your Chapter 13 repayment plan, you may be able to convert the bankruptcy to a Chapter 7. This should provide another two to three months of relief from a foreclosure sale.
Benefits of a Chapter 13 Bankruptcy
- Repay missed mortgage payments over three to five years, the typical lifespan of a Chapter 13 bankruptcy repayment plan
- Pay none, or a small portion, of the unsecured debts during the repayment plan period with the expectation of having them completely dismissed at the end of the period
- The ability to contest costs and fees added to any missed payments
- The potential to challenge the legality of any pending or proposed foreclosure in court
- Dismiss any second or third liens on your home that would not have a chance of being paid if your home was sold, due to insufficient property value
More Information
- Official information on Chapter 13 bankruptcies provided by the Administrative Office of the U.S. Courts on behalf of the U.S. Courts
- Lawyers and Legal Assistance
- Delay Tactics
- Final Options
- Other Foreclosure Solutions
