How Chapter 13 Bankruptcy Can Help You Avoid Foreclosure
At Cannon Law Offices, PLLC, we understand how overwhelming the possibility of foreclosure can be. If you're facing this situation, you may feel like there's no way out.
However, Chapter 13 bankruptcy can be a valuable tool in helping you avoid foreclosure and get back on track financially.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is a form of debt reorganization that allows individuals to propose a repayment plan to creditors over a set period, typically three to five years. Unlike Chapter 7 bankruptcy, which involves liquidating assets to pay off debts, Chapter 13 allows you to keep your assets, including your home, while paying off a portion of your debts.
In a Chapter 13 case, the court approves a repayment plan that will allow you to pay your creditors over time. The plan is tailored to your income, expenses, and the nature of your debt.
If you’ve fallen behind on your mortgage payments and are at risk of foreclosure, Chapter 13 bankruptcy can offer a way to stop foreclosure proceedings and get back on track with your payments.
How Chapter 13 Helps Prevent Foreclosure
One of the most significant benefits of Chapter 13 bankruptcy is its ability to prevent foreclosure. When you file for Chapter 13 bankruptcy, an automatic stay is put into place. This stay immediately halts any foreclosure actions, including eviction proceedings, wage garnishments, and creditor harassment.
The stay gives you time to catch up on missed mortgage payments and work out a plan with your lender. Here’s how Chapter 13 helps prevent foreclosure:
Automatic stay: When you file for Chapter 13, the automatic stay prevents your lender from continuing with foreclosure actions. This gives you time to work out a repayment plan with your lender and get your finances in order.
Repayment plan: Chapter 13 allows you to repay any missed mortgage payments over the course of the repayment plan. Instead of losing your home to foreclosure, you can bring your payments up to date gradually.
Modification of loan terms: In some cases, Chapter 13 may allow you to modify the terms of your mortgage. This could include reducing your interest rate, extending the loan term, or even reducing the principal balance.
Priority for mortgage payments: Your mortgage is given priority in the repayment plan. This means that your mortgage payments are often made before other unsecured debts, such as credit card bills or medical bills, which helps make sure that you stay current on your mortgage.
How the Chapter 13 Bankruptcy Process Works
Filing for Chapter 13 bankruptcy is not a decision to take lightly, but it can provide the relief you need to stop foreclosure and regain control of your financial future. Here’s an overview of the process:
File the bankruptcy petition: To begin the process, you must file a petition with the bankruptcy court. The petition includes your personal information, a list of your assets and liabilities, and your income and expenses. You’ll also be required to submit various forms and documents, including proof of income, tax returns, and details about your debts.
Automatic stay in effect: Once your petition is filed, the automatic stay goes into effect. This immediately halts foreclosure proceedings and creditor collections, giving you time to prepare your repayment plan.
Repayment plan proposal: With the help of your bankruptcy attorney, you’ll create a repayment plan. The plan will outline how you intend to repay your debts, including any arrears on your mortgage. The repayment plan will be submitted to the bankruptcy court for approval.
Plan confirmation hearing: Once your plan is submitted, a hearing will be held where the court will review your plan. If the plan is deemed reasonable, the court will confirm it. Once the plan is confirmed, it becomes binding, and you’ll begin making regular payments according to the terms.
Ongoing payments: After the plan is confirmed, you’ll begin making regular monthly payments to the bankruptcy trustee. The trustee will distribute the payments to your creditors, including your mortgage lender.
Completion of the plan: Once you have completed the repayment plan, any remaining unsecured debts are typically discharged. If you have made all the required payments and fulfilled the terms of your plan, your mortgage will be current, and you’ll have avoided foreclosure.
Benefits of Chapter 13 Bankruptcy for Foreclosure Prevention
If you're facing foreclosure, there are several key benefits to choosing Chapter 13 bankruptcy:
Stay in your home: Chapter 13 bankruptcy can give you the opportunity to save your home by stopping foreclosure and providing a structured way to catch up on missed payments.
Eliminate or reduce other debts: In addition to helping you avoid foreclosure, Chapter 13 bankruptcy can also eliminate or reduce other unsecured debts, such as credit card debt, medical bills, and personal loans.
Consolidate your payments: Instead of dealing with multiple creditors, you make a single payment to the bankruptcy trustee, who then distributes the funds to your creditors.
Lower monthly payments: By reorganizing your debts and extending the repayment period, Chapter 13 can lower your monthly payment, making it easier for you to meet your obligations.
Protect your property: Unlike Chapter 7, which may require you to liquidate assets, Chapter 13 allows you to keep your property while repaying your debts.
Improve your credit: Although filing for bankruptcy initially impacts your credit score, completing a Chapter 13 plan can help you rebuild your credit over time. By making regular payments and successfully completing the plan, you show creditors that you're able to manage your finances responsibly.
Is Chapter 13 Bankruptcy Right for You?
While Chapter 13 bankruptcy can be a powerful tool for avoiding foreclosure, it’s not the right choice for everyone. It’s important to consider all your options before making a decision. Here are a few things to consider:
Eligibility: You must have regular income to be eligible for Chapter 13 bankruptcy. If you’re unemployed or unable to make regular payments, Chapter 13 may not be a viable option.
Debt limits: Chapter 13 has limits on the amount of debt you can have to qualify. As of 2021, unsecured debts must be less than $419,275, and secured debts must be less than $1,257,850. If your debts exceed these limits, you may need to consider Chapter 11 bankruptcy or another alternative.
Commitment to repayment: Chapter 13 requires a significant commitment to making regular payments for three to five years. If you’re unable to make your payments, the bankruptcy court may dismiss your case, and you could face foreclosure once again.
Impact on credit: While Chapter 13 bankruptcy may improve your credit over time, it will remain on your credit report for up to seven years. This could affect your ability to secure new credit during that time.
Contact Us Today
If you’re facing foreclosure and looking for a way to keep your home, Chapter 13 bankruptcy may be the solution you need. At Cannon Law Offices, PLLC, we can help you understand your options and guide you through the bankruptcy process. Located in Greenville, North Carolina, we also serve the Pitt County area, including Beaufort County, Craven County, Lenoir County, Martin County, and Greene County. Reach out today to get started with a consultation.