During my time as a bankruptcy paralegal I heard hundreds of reasons why individuals and married couples decided to file for personal bankruptcy. The main reason I heard people choosing to file Chapter 13 bankruptcy was to stop the foreclosure process on their home. With the housing crisis that America faced several years ago and the still waning real estate market it is no surprise that foreclosures are rampant, but giving up your home is never an easy decision to make. In some cases filing Chapter 13 bankruptcy to halt a foreclosure is the best decision a family can make. So how does it work?
First of all let me explain what a Chapter 13 bankruptcy is. Chapter 13 bankruptcy is a form of personal bankruptcy that involves a 3-5 year court ordered payment plan where the debtor is allowed to pay back a percentage of their overall unsecured debt and any other secured debt that they choose. Put simply, the debtor sends a check to his/her bankruptcy trustee every month for 3-5 years and the trustee makes sure that all of the creditors are paid. By the end of a typical Chapter 13 bankruptcy the debtor is free of all unsecured debts (credit cards and/or medical bills) and caught up on all secured payments (mortgage and/or vehicle). And that is where foreclosure comes in.
If the foreclosure process has already started when you file Chapter 13 bankruptcy then the bankruptcy court will notify the bank to stop all proceedings until further notice. At that point your bankruptcy lawyer and the bankruptcy trustee who will oversee your case will create your repayment plan. The repayment plan will include all of the mortgage payments that you are behind on and any unsecured debt you may have. The current payments on your mortgage will need to be paid by you outside of the plan in order to stay up to date. As long as you are making your monthly bankruptcy payments then the bank who holds your mortgage has no right to take legal action against you. In fact, in order to take legal action against you the bank would need to file a motion with the bankruptcy trustee.
By the end of your Chapter 13 repayment plan you will be caught up on your past and present mortgage payments and at no risk of losing your home. This also works in the case of vehicle repossession. If you are being threatened with foreclosure or are in the midst of the process and think that filing Chapter 13 bankruptcy could benefit you then don’t hesitate to contact a local bankruptcy attorney. In most cases bankruptcy attorneys offer free initial consultations that allow you to share your situation with them to see if they can help. Filing Chapter 13 bankruptcy could be the final push you need to help save your home.