How to Save Your Home

Foreclosure is the legal proceeding in which a bank or mortgage company takes title to real estate due to the homeowner’s failure to make the agreed mortgage payments. The downward spiral into foreclosure begins when your loan payment becomes 16 days overdue. At that point, your mortgage lender may try to contact you to work out a repayment schedule to bring your loan current. If your payments fall 90 days behind, the mortgage company will likely refer your mortgage to an attorney that will start formal foreclosure proceedings. Many consumers do not understand that the bankruptcy code can help them save their homes from mortgage foreclosure. This page will explain the difference between Chapter 13 and Chapter 7 bankruptcy and how they can rescue your home from mortgage foreclosure.

Chapter 13 Bankruptcy Stops Foreclosure

Chapter 13 bankruptcy is designed to stop foreclosure. In fact, stopping mortgage foreclosures is the driving force behind many Chapter 13 bankruptcies. As soon as you file Chapter 13 bankruptcy an “automatic stay” goes into effect. This “stay” stops your mortgage company from continuing to foreclose on your home. Your mortgage company cannot contact you in regard to your pre-filing mortgage arrears (the amount you are behind on the mortgage) while you are in the Chapter 13 bankruptcy.

This legal option is a very powerful tool!  As soon as you file Chapter 13 bankruptcy, an “automatic stay” goes into effect. This “stay” stops your mortgage company from continuing to foreclose on your home. You can file a chapter 13 bankruptcy to stop a mortgage foreclosure, provided you:

  • Are employed or have a steady source of income;
  • Have enough income to make your Chapter 13 plan payments, and your current mortgage payments after the Chapter 13 is filed.

mortgage-related bankruptcy terms

Chapter 13 Plan To Save Home

Once you prepare a Chapter 13 plan with your attorney, you will file a Chapter 13 petition for relief and the foreclosure proceeding will stop. The bankruptcy trustee will then recommend your Chapter 13 plan for confirmation and the bankruptcy court will approve a repayment plan that allows you to get current on your mortgage over a three to five year period. Chapter 13 plan payments are fixed so that you can meet all your living expenses first and then pay any surplus income to creditors. You must make all current mortgage payments that come due after the Chapter 13 bankruptcy petition is filed.

Homeowners must make all mortgage payments that come due during the Chapter 13 plan. If you fail to make your post-filing mortgage payments the mortgage company can ask the bankruptcy court to lift the protection of the automatic stay and the mortgage company can resume the foreclosure proceeding if the judge agrees with the mortgage company. The possibility of refinancing your mortgage after you have gotten back on track with your Chapter 13 plan is a real possibility for many consumers

When Should You File Chapter 13 Bankruptcy to Stop a Mortgage Foreclosure:

Generally, the Chapter 13 bankruptcy must be filed before the mortgage company sells your home. However, if you find yourself behind on your mortgage payments you ought to call an experienced attorney to explore all of your options before the situation spins out of control. The Chapter 13 bankruptcy filing gives homeowners the time they need to catch up on their mortgage payments.

Who Can File Chapter 13 Bankruptcy:

You can file a chapter 13 bankruptcy to stop a mortgage foreclosure, provided you:

  • Are employed or have a steady source of income;
  • Have enough income to make your Chapter 13 plan payments, and your current mortgage payments after the chapter 13 is filed.

Chapter 13 plan payments are fixed so that you can meet all your living expenses first and then pay any surplus income to creditors. Mike and Chad can help you structure a repayment plan that works for you and your creditors.

Choosing Between Chapter 13 and Chapter 7

If you are facing foreclosure on your home, the automatic stay created by a Chapter 7 filing serves as a temporary defense against foreclosure. It will allow you to discharge, or eliminate, any deficiency balance owed to your mortgage company if your home is sold for less than the outstanding balance owed to the mortgage company. Chapter 7 will give you a fresh start, but will not provide you with the opportunity to catch up with your mortgage payments. Although Chapter 7 can temporarily delay the foreclosure proceeding, it cannot provide the long-term protection of Chapter 13 because no plan to repay the mortgage delinquency is proposed.

Chapter 7 Bankruptcy May Offer Temporary Defense against Foreclosure

If you are facing foreclosure on your home, the automatic stay created by a Chapter 7 filing serves as a temporary defense against foreclosure. It will allow you to discharge, or eliminate, any deficiency balance owed to your mortgage company if your home is sold for less than the outstanding balance owed to the mortgage company. Chapter 7 will give you a fresh start, but will not provide you with the opportunity to catch up with your mortgage payments. Although Chapter 7 can temporarily delay the foreclosure proceeding, it cannot provide the long-term protection of Chapter 13 because no plan to repay the mortgage delinquency is proposed.

For more detailed information about home foreclosure and bankruptcy please request a free consultation with one of our attorneys.

 

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