It's bad enough that some financial calamity prevented you from keeping up on your mortgage payments. Then you began receiving calls, letters and other correspondence from your lender, telling you to pay up, even though you made it clear that you aren't able to make the payments under the current terms of your mortgage loan. You probably tried everything to work something out, but your lender refuses to work with you. Now, your lender threatens to file for foreclosure and take your home away from you.
Even so, you still hold out hope that you can keep your home. You finally come to the realization that you need a more aggressive approach. So, you found your way here, and search for answers to your questions. You may begin to see that bankruptcy could not only help you save your home, but could also help provide you with a clean slate upon which to rebuild your financial life.
How can a Chapter 13 bankruptcy help?
The first thing filing for Chapter 13 bankruptcy does for you is stop all collection efforts, including foreclosure. Under the automatic stay, your lender can take no further action against you until the court closes the bankruptcy. However, under some circumstances, the reprieve may only be temporary:
- Your lender may file a Motion to Lift Stay, which is a request to continue collection efforts, including foreclosure, in spite of the automatic stay. If granted, foreclosure proceedings may continue.
- If you received notice that your lender intends to sell your home on a particular date prior to filing for bankruptcy, the court may allow the sale to continue if your lender files to have the stay lifted.
Realistically, your lender doesn't want your house; it wants the money it's owed. Once your lender knows that you filed for bankruptcy, it may wait to see what you intend to do about your mortgage loan.
Filing Chapter 13 bankruptcy to save your home
Most people who want to keep their homes file for Chapter 13 bankruptcy, which requires a plan to make up the past due payments and continue paying the mortgage over time. In order to qualify for this type of bankruptcy, you must have regular income and the ability to make payments.
Under this chapter, you propose a repayment plan -- which the court must approve -- that includes catching up on your mortgage loan payments over the course of three to five years, depending on your financial situation. As long as you make the payments outlined in your plan for its duration, you may be able to keep your home.
If you have a second or even third mortgage loan, Chapter 13 allows the bankruptcy court to convert those loans to unsecured debt as long as your first mortgage meets or exceeds the value of your home, which means you have no equity in it and, therefore, your home doesn't secure these loans. This helps you because, at the end of your repayment plan, there is often the discharging of unsecured debts, which means that your obligation to pay those debts ends.
How do I file for Chapter 13 bankruptcy?
The bankruptcy process involves complex rules, deadlines and an abundance of paperwork, but if you qualify for Chapter 13 and can save your home, it may be worth it. Because of what is at stake, you want to make sure to avoid making any mistakes that could jeopardize what you are trying to do. If you are unsure where to begin, you could greatly benefit from the advice, guidance and assistance of an attorney who understands the process.