What Happens to my Home in a Chapter 13?

One of the biggest fears that people have when preparing to file bankruptcy is that they will lose their home. Fortunately, there are many ways to avoid foreclosure if you’ve fallen behind on your debt. Your first step should always be to work with your lender or look into refinancing or loan modification. This could help you to get caught up on payments or lower your mortgage, and you’ll be able to keep your home while avoiding bankruptcy. If you still believe bankruptcy is your best choice, you’ll want to make sure you have all the facts straight about your mortgage.

Extra Time

If you decide to file a Chapter 13, this may enable you to save your home from foreclosure. In this type of bankruptcy, your debts are reconfigured and you’re put on a 3-5 year repayment plan, and this includes mortgage payments that were in arrearage. You’ll need to make your full mortgage payment and your Chapter 13 payments, which will include your missed mortgage payments.

If you have a second or third mortgage, it may be possible to turn these into unsecured debts if the balance on your first mortgage meets or exceeds the value of your house. In this case, the additional mortgages are treated just like credit card debt, which is often not paid at all in a Chapter 13.

Taking Advantage of the Automatic Stay

No matter which chapter of bankruptcy you file, the automatic stay will temporarily stop your payments. This could give you some time to get back on your feet, and once your Chapter 13 repayment plan is approved, you’ll go back to your mortgage payments with the missed payments rolled into the payment plan. Each case is different, and some plans do not allow you to include mortgage arrears in your payments. In this case, you would need to get caught up immediately or face foreclosure. Some people choose to get out of an unreasonable mortgage and use the automatic stay period of a Chapter 13 to save up money and make a plan. You’ll be living mortgage free for several months as your case is in court, which is an important benefit of filing. Of course there are always exceptions in legal proceedings. If you’ve previously filed bankruptcy (within the last two years) and your mortgage lender succeeded in having the automatic stay lifted, filing a Chapter 13 will not stop a foreclosure.

The Best Plan

Bankruptcy is a valuable tool that was designed to help people get a second chance with their finances. The goal is to enable consumers to put their debt behind them while maintaining a basic standard of living with many of their assets intact. If you’re worried about losing property in a bankruptcy, give me a call. We’ll look at your overall situation together and then make the choices that will set you up for the most successful future possible.