How Can Chapter 13 Bankruptcy Help Me Avoid Foreclosure?

Many Americans struggle with debts and other financial problems, and if they have been unable to make some mortgage payments, they may fear that they will lose their homes to foreclosure. The COVID-19 pandemic has placed many people in positions of financial uncertainty, but while a moratorium on foreclosures has been implemented to protect people who are struggling, those who have defaulted on their mortgage may face the potential loss of their home in the future. If you are in this position, you may be able to address your past-due mortgage payments and avoid foreclosure by filing for Chapter 13 bankruptcy.

Debt Reorganization Through Chapter 13

By filing for bankruptcy, you can halt the foreclosure process and prevent a creditor from selling your home or having you evicted. In a Chapter 13 bankruptcy, you will propose a repayment plan in which you will pay off your outstanding debts over a period of three to five years. This repayment plan may include unsecured debts, as well as payments of secured debts (such as a mortgage or car loan) that are in “arrears,” meaning that they were not paid on time and are still owed.

Once you complete your Chapter 13 repayment plan, any unsecured debts that have not been fully paid off will be discharged, and you will no longer owe any money to those creditors. Secured debts typically cannot be discharged without the creditor repossessing the property secured by the debt. However, the amount of your arrears can be included in your repayment plan, allowing you to pay off the past-due amount over time. If you continue making ongoing mortgage payments throughout your repayment plan, you will become current on your payments once the plan is complete, and you will be able to maintain ownership of your home.

If you have a second mortgage on your home or any other junior loans, you may be able to have those loans discharged during a Chapter 13 bankruptcy through a process known as “lien stripping.” If your home is “underwater,” meaning that you owe more on your first mortgage than the home’s actual value, any additional mortgages will usually be considered unsecured debts. These loans may be incorporated into your repayment plan, and once the plan is complete, they will be discharged, allowing you to lower the total amount you owe and the amount you will pay on a monthly basis.

Find a Chapter 13 Bankruptcy Attorney Near You

The process of filing for Chapter 13 bankruptcy can be very complicated, and in most cases, debtors need legal help to ensure they meet all their requirements. If you are struggling with debts and facing a potential foreclosure, a U.S. bankruptcy lawyer can advise you of your options, help you file for bankruptcy, and provide you with representation through all legal proceedings. With a skilled legal advocate on your side, you can address your debts, maintain ownership of your home when possible, and build a financially secure future for you and your family.

Sources:

https://www.creditkarma.com/advice/i/chapter-13-bankruptcy-foreclosure

https://library.nclc.org/sd/1804

https://homeguides.sfgate.com/can-keep-home-release-second-mortgage-debt-through-bankruptcy-47148.html