Chapter 13 bankruptcy is designed to create a manageable repayment plan, which can delay and even prevent foreclosure. By catching up on missed mortgage payments and staying current with your payments through the plan, foreclosure proceedings can be stopped indefinitely – unless new payments are missed. Keep reading to learn how Chapter 13 bankruptcy can help protect your home from foreclosure. 

What Is Foreclosure?

Foreclosure is a legal proceeding where the lender is authorized to repossess and then sell the property of a borrower who has missed a certain amount of payments. The goal is for the lender to be able to recoup the money that would be lost from the borrower. It is more economical for the lender if the borrower continues making payments, even if they are smaller or deferred for a period of time, so be sure to reach out to your lender to see if they are willing to work with you to create an alternative repayment plan.

What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is often referred to as the ‘wage-earners bankruptcy.’ What this means is you are still able to make payments on some of the debts you owe, even if you aren’t able to make the minimum payments on everything.

When you file for Chapter 13 bankruptcy, the goal is to create a repayment plan that combines all of the individual’s debts into one, easier-to-manage payment. A bankruptcy trustee would be put over the estate of the individual and would monitor their progress of repayment. 

Understand the COST before filing

One of the most important things to understand is your Chapter 13 plan payment example. The payment could be vastly different based on your finances. Look at the estimate below which ranges between $800 – $4000 per month.

So, what would your Chapter 13 plan payment be?

The bankruptcy forms are complex, but the answer to this question is so important that we built a free Chapter 13 bankruptcy calculator based on the forms below to help you estimate your Chapter 13 plan payment

Does Filing For Chapter 13 Bankruptcy Stop Foreclosure?

Likely, filing for Chapter 13 bankruptcy can indefinitely halt the threat of foreclosure, as long as you stick to your repayment plan. Chapter 13 focuses on creating a manageable payment plan, potentially allowing you to continue making adjusted payments until your home is fully paid off.

When you file for bankruptcy, an automatic stay is placed on all you debts. This means that if your mortgage lender is pursuing foreclosure, they must pause until your case is resolved or the stay is lifted.

In chapter 13, a trustee, with input from your creditors, will design a repayment plan that includes your mortgage. While unsecured debts like credit cards and medical bills may be discharged, your mortgage remains. However, with other debts reduced or eliminated, your ability to keep up with mortgage payments should improve significantly, reducing the risk of foreclosure.

Other Things To Consider

Make sure you are communicating with your lender. If it has become apparent to you that you will not be able to make your payments, the worst thing you could do is ignore your lender and hope the issue goes away. Doing this would only ensure a default judgment against you. So reach out to your lender and see if they have any alternative payment plans that may help you!

Conclusion

Falling behind on your mortgage payments can happen for a wide variety of reasons. Whether you were unexpectedly hospitalized, let go from your job without warning, or experienced some other kind of financial hardship, keeping up with mortgage payments on top of your normal cost of living can be difficult. When this happens, it’s important to know what options are available to you.