Chapter 13 Bankruptcy and Foreclosure
Chapter 13 Bankruptcy Basics
Federal bankruptcy laws are designed to help those overwhelmed with debts find financial relief.
Chapter 13 bankruptcy is one of two main bankruptcy chapters for individuals seeking debt relief and is specifically designed to help stop foreclosure and repossession.
By speaking with a local bankruptcy attorney, you can learn more about how to stop foreclosure and how bankruptcy laws are designed to protect homes.
Simply fill out our bankruptcy case review form to connect with a local attorney for a free case evaluation.
Chapter 13 Bankruptcy Laws
Bankruptcy laws are set out by Congress to help individuals and families in financial crisis.
Chapter 13 bankruptcy gives debtors the chance to catch up on past due debts over a period of time—usually between three and five years—by creating a structured payment plan.
In order to file Chapter 13 bankruptcy, filers must have a regular source of income to pay the bankruptcy plan, as well as debts that fall below a set limit.
Chapter 13 bankruptcy is known as a reorganization of debts. Secured debts, which include home mortgages and car loans, are given priority by the bankruptcy court.
Filers with secured debts in addition to excessive credit card debt or medical debt may see those unsecured debts drastically reduced or eliminated in the reorganization.
In the Chapter 13 plan, debts are paid to the bankruptcy trustee, and then distributed by the courts to creditors. Many debtors have no contact with their creditors for the majority of their bankruptcy.
Chapter 13 Bankruptcy May Stop Foreclosure
Many people who file Chapter 13 bankruptcy do so specifically to stop home foreclosure.
Bankruptcy includes the protection of the bankruptcy automatic stay, a court order that immediately halts foreclosure efforts.
In a foreclosure bankruptcy, only missed payments that are in arrears can be included in the filing.
Individuals must be able to make their monthly payment to the bankruptcy trustee while continuing to make their regular mortgage payments.
Generally, a homeowner can file a Chapter 13 bankruptcy to stop a foreclosure if he or she:
- Is employed or has another regular source of income
- Has sufficient income to make Chapter 13 plan payments as well as all current mortgage payments and living expenses
- Does not have debts in excess of the statutory caps for Chapter 13 bankruptcy
How Chapter 13 Bankruptcy Works
Chapter 13 bankruptcy structures and organizes an individual’s debts into one affordable monthly payment for a period of three to five years.
This payment plan is created by the debtor, creditors and the bankruptcy court.
Within 15 days after filing a Chapter 13 bankruptcy petition, the debtor must file a proposed repayment plan.
This plan sets forth income, allowable living expenses (as defined by the US bankruptcy courts and the IRS), and proposed payments to the trustee.
Payments must be kept current after the Chapter 13 bankruptcy petition is filed.
Homeowners must make all monthly mortgage payments that come due during the bankruptcy period.
Failure to stay current on payments cause the bankruptcy court to life the automatic stay and allow the mortgage company to resume foreclosure proceedings.
Filing Chapter 13 Bankruptcy with a Local Attorney
Chapter 13 bankruptcy can be a powerful tool if you’re facing home foreclosure. A local bankruptcy attorney can help you explore your options and work out the details of your Chapter 13 case.
You can connect with a local bankruptcy lawyer today for a free case evaluation. Simply fill out the form on this page or call 877-215-1553 and we’ll help you get in contact with a bankruptcy attorney in your area.
Curious about what happens after bankruptcy? Learn about refinancing after bankruptcy.