How Chapter 13 Bankruptcy Can Help You Save Your Home from Foreclosure
Chapter 13 is perhaps the most effective tool in the Bankruptcy Code that can help you save your home from a foreclosure. While other tools, such as Chapter 7 or debt consolidation, may help rebuild your financial stability in limited ways, only Chapter 13 combines all of the elements you need to be successful.
However, for Chapter 13 to work, you need to have enough income to maintain your mortgage payments. If you are unemployed and without income, filing for Chapter 7 bankruptcy is probably a better option, as it will allow you to free yourself of nearly all of your debts. But, you likely won’t be able to stay in your house after filing for Chapter 7.
In the Chapter 13 process, an automatic stay begins the moment you file your case with the clerk at the bankruptcy court. The value of the stay is that it stops all collection activity, including the incessant collection phone calls and mailings. Creditors must communicate with you through your attorney.
The automatic stay also allows you time to assemble your Chapter 13 Plan and it stops any legal proceedings, including foreclosure, for the time being.
Chapter 13 Plan-Arrears
The most powerful part of the Chapter 13 filing process is the plan. The Chapter 13 plan allows you to restructure your debt, and in some cases, reduce your unsecured debt obligations to pennies on the dollar. It also permits mortgage arrears to be paid over the five years of the plan.
The potential reduction of unsecured debt and the ability to spread arrears payments over five years are often what a homeowner needs to free up enough cash to be able to make monthly mortgage payments on time.
If you are able to make all of your plan payments on time, at the end of the five years, you may receive a discharge of your non-mortgage debts. This means you could be able to emerge from a Chapter 13 with only your mortgage debt.
An experienced bankruptcy attorney is a good resource to go to for advice on how to recover from unmanageable debt burdens. He or she can review your financial situation and help develop a strategy to regain your financial health.