Homeownership has traditionally been considered a cornerstone of the American dream, but financial setbacks can sometimes threaten this dream, even for those who are well compensated, fiscally responsible and generally considered low-risk for foreclosure. For homeowners struggling with mortgage payments, facing the possibility of foreclosure is nothing short of terrifying. Fortunately, there’s a potential remedy available: Chapter 13 bankruptcy.
Chapter 13 bankruptcy, often referred to as a “wage earner’s plan,” allows individuals with regular income to develop a plan to repay all or part of their debts over three to five years. One of the most powerful tools within Chapter 13 is its ability to halt foreclosure proceedings and give homeowners a chance to catch up on missed mortgage payments.
The gifts of time and the automatic stay
When a filer initiates a Chapter 13 case, the automatic stay goes into effect. This legal provision stops most collection efforts, including foreclosure sales. With foreclosure proceedings halted, homeowners then have the breathing room to restructure their finances, renegotiate the terms of their lease and/or get caught up on overdue payments.
Within the Chapter 13 repayment plan, past-due mortgage payments can be spread out over the length of the plan, which will last for years. In addition to halting foreclosure and allowing homeowners to catch up on missed payments, Chapter 13 can sometimes also help reduce or eliminate payments on other debts. This can make it more manageable for homeowners to address their mortgage obligations as well because their budget will eventually be less burdened by other debt loads.
While Chapter 13 bankruptcy might seem like an extreme approach, for many, it’s a lifeline. Not only can it offer homeowners a way to keep their homes, but it can also provide a structured path to financial recovery.