Unlike Chapter 7 bankruptcy, which focuses on liquidation, Chapter 13 bankruptcy focuses on helping you create a practical repayment schedule based on your disposable income. After falling behind on your mortgage payments for months, the bank will likely send you a foreclosure notice. So, you need to act fast to avoid losing your home. If you are confident that a flexible repayment plan can help you repay your missed payment and continue paying the current payments, filing Chapter 13 can help delay or stop the foreclosure proceedings on your home although a Chapter 13 payment calculator can help you estimate your payment. Here are four things you need to know about Chapter 13 bankruptcy and foreclosure.
What Is Foreclosure?
When you fall back on your mortgage payment, your lender might take legal action to repossess the home. At this point, the house is said to be in foreclosure. Foreclosure is the legal process where the lender seeks to repossess a home from a defaulting mortgage lender and sell it. However, the lender needs to repossess the house according to the rules stipulated in the mortgage agreement.
A bank or mortgage lender forecloses a home to recover the debt the borrower missed to pay. So, if you are falling behind on your payment, consider reaching out to your lender, explaining your situation, and negotiating an alternative repayment plan.
What Is Chapter 13 Bankruptcy?
If your mortgage payments are in arrears, your lenders might hire debt collectors to barrage you to pay the missed payment. Here is an 11-word phrase to stop debt collectors immediately. However, this is not the end. If you have missed numerous payments, you should consider filing for bankruptcy. But what is Chapter 13 bankruptcy?
It is a form of bankruptcy, commonly referred to as ‘wage-earners bankruptcy.’ Chapter 13 bankruptcy helps you create a flexible debt payment schedule according to your current disposable income. Thus, it is ideal for people who earn a wage but cannot meet the minimum debt payments. After filing for Chapter 13 bankruptcy, you develop a new repayment plan that combines all your debts for easier payment. The court will appoint a bankruptcy trustee to monitor your payments and pass the payments to your creditors on your behalf.
How Much Does it Cost to File Chapter 13 Bankruptcy?
Filing Chapter 13 bankruptcy can help delay foreclosure. However, you need to understand if the new debt payment plan will include mortgage payments already in arrears. You can use a free Chapter 13 bankruptcy calculator to estimate your plan payment.
You also need to consider the cost of filing for bankruptcy. The cost will vary from state to state. If you were wondering, here is an estimate of how much does it cost to file bankruptcy in Alabama and how much does it cost to file bankruptcy in Mississippi. Before filing for bankruptcy, check for the cost of filing in your state for a more accurate prediction.
Will Filing For Chapter 13 Bankruptcy Help Delay or Stop Foreclosure?
It depends. Chapter 13 bankruptcy will likely help stop the threat of foreclosure. But, you will need to be consistent with your repayments. The goal of Chapter 13 bankruptcy is to create a practical payment plan. Therefore, if you stick to the plan and make timely payment, you can fully pay off your home, indefinitely suspending the threat of foreclosure.
As soon as you file for bankruptcy, the court puts an automatic stay on your debts. So, if your mortgage lender is trying to foreclose your home, the court legally stops them until they either file or dismiss your case. If your case gets dismissed, the automatic stay is lifted, and the foreclosure proceedings can continue.
During the court proceedings, the court will assign a Chapter 13 bankruptcy trustee to your case. The trustee represents your creditors, and based on your financial situation; they will help come up with a repayment plan for all your debts, including your mortgage.
At the end of your bankruptcy case, the court may decide to discharge unsecured debts like hospital bills. However, your mortgage cannot be discharged. Fortunately, if your other debts are discharged, you will have more money to pay your mortgage. You can stop the foreclosure by following the new repayment plan.
Other Things to Consider
Unfortunately, not everyone qualifies to file for Chapter 13 bankruptcy. If you don’t, this is not the end. You also have the option to file for Chapter 7 bankruptcy. You could also look into debt relief with such companies as Freedom Debt Relief or National Debt Relief. That said, CFPB sued Freedom Debt Relief in 2017 due to misleading about it’s debt settlement services.
Instead of defaulting on your payments, always try to communicate with your lender. Ignoring your lender will aggravate matters instead of making the issue go away. Sometimes, your lender might be reasonable and offer alternative payment plans that could be convenient for you. On the other hand, ignoring your lender will lead to a default judgment against you, forcing the lender to take extreme debt collection measures.
Take Away
There are different reasons why you could fall behind on your mortgage payment. It can be a medical emergency that milks your savings dry or an unexpected loss of income. Irrespective of the reason behind your mortgage payment arrears, always know you have options available, like filing Chapter 13 bankruptcy.
