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How Chapter 13 Can Help Prevent Foreclosure

October 12, 2021
Chapter 13 Prevent Foreclosure

If you are facing foreclosure and want to keep your home, not all is lost. You have two options, although the first option is not usually viable. The first one is to catch up on the debt. The second option is to file for a Chapter 13 bankruptcy. Filing for Chapter 13 can help prevent foreclosure on your home and stop legal actions against you.

What is Chapter 13?

In a nutshell, Chapter 13 is a reorganization plan supervised by the bankruptcy court. When you file Chapter 13, you create a Chapter 13 plan. This plan shows how much you can pay toward each outstanding bill you have. You make a monthly payment to the bankruptcy trustee, who then doles it out to your creditors. Certain creditors get paid before others, including anyone you owe taxes to (federal, state, and local), child support, and secured creditors.

How Does Filing Chapter 13 Stop a Foreclosure?

When you file a Chapter 7 liquidation or a Chapter 13 reorganization, the filing immediately tolls any legal action against you. This includes lawsuits against you by your mortgage company and other creditors. If you have a civil case against you, it delays that action too.

This is what is known as the automatic stay. However, creditors can motion the court to lift the automatic stay for their accounts. For example, if you have a past-due mortgage and you own several credit cards. It’s usually rare for a credit card holder to ask the court to lift the stay. However, mortgage holders sometimes ask the court to lift the stay, especially if they believe the debtor, you, are filing to delay paying the arrearage on the mortgage.

You do have to continue paying your regular monthly payment during bankruptcy. Still, if the mortgage company does not request a lift on the stay or if the court denies it when making that request, you do not have to worry about paying the arrearage since you can include it in your bankruptcy plan.

Paying Arrearages

You could only pay part of most of the debt included in the bankruptcy plan. However, you must pay the total amount due for priority debts such as taxes and secured debts, such as your mortgage. The trustee will pay those debts before paying unsecured debts, such as credit cards and medical expenses. During bankruptcy, you must also pay your mortgage payment on time. If your bankruptcy is discharged at the end of the term, any remaining unsecured debt is wiped out.

In most cases, bankruptcy helps you catch up on your mortgage payments. If not, you will need to make the remaining payments on the arrearage or otherwise work with your mortgage company to make other arrangements, such as deferring the amount to the end of the loan.

Contact a Chapter 13 Bankruptcy Lawyer

If you are facing foreclosure or want more information on Chapter 13bankruptcy, contact a Chapter 13 bankruptcy attorney at SM Law Group in Encino, CA, for a free consultation.

If you are looking for ways to get debt-free, don’t hesitate to contact us today through our website or give us a call at to schedule your free consultation.</strong >

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