Facing the daunting prospect of losing a home to foreclosure is a very stressful experience for any homeowner. Fortunately, if you are struggling with this very situation, know that filing for Chapter 13 bankruptcy can offer a potentially viable solution to save your property. This financial strategy will allow you to reorganize your debts and create a plan to repay them over time, potentially making it possible to keep your home.
Chapter 13 bankruptcy, often termed a “wage earner’s plan,” empowers individuals who have access to regular income to implement a plan to repay all or part of their debts. Under this chapter of the U.S. Bankruptcy Code, debtors generally make manageable payments to creditors on a monthly basis, over three to five years. Depending on the terms of your situation, you could catch up on missed mortgage payments through this kind of repayment plan.
How does this process work?
One of the most immediate benefits of filing for Chapter 13 bankruptcy is the automatic stay. This legal provision halts creditors from collecting debts the moment the bankruptcy petition is filed, effectively stopping (most) foreclosures in their tracks. The automatic stay usually gives homeowners the breathing room needed to reorganize their finances without the constant threat of losing their home.
Unless an exception applies to their situation, debtors can include their past-due mortgage payments in their plan and spread them out over the life of that plan, making it more manageable to catch up while staying current with their ongoing mortgage payments. During the repayment period, you may even be able to renegotiate the terms of your mortgage to make future repayment obligations easier to manage.
Moreover, Chapter 13 bankruptcy can also help with second or third mortgages. If the home’s value is less than the balance on the first mortgage, the bankruptcy court may “strip” these junior mortgages and treat them as unsecured debt, which often results in a significant portion being discharged, thereby lowering the total debt owed.
The outcome of a bankruptcy case is never fully guaranteed. However, by approaching this process thoughtfully, you could potentially use it to save your home from foreclosure.
