Chapter 13 is a form of bankruptcy that allows you to restructure your outstanding debts for repayment over an extended period of time. This includes defaulted home mortgage loans that are in the process of foreclosure. If you meet the eligibility requirements for Chapter 13, you can put a hold on the foreclosure, buy yourself time to consider what to do to save your home or to make alternative arrangements. Chapter 13 is not a permanent mortgage-debt solution, but it will provide a respite, and offer a new set of opportunities to regain stability.
Filing a Chapter 13 bankruptcy creates an automatic stay that grinds creditors to a halt, including banks, mortgage companies and other individuals or entities that may have loaned you money for your dwelling. If your mortgage is in default and you file a Chapter 13 before foreclosure takes place, that process is halted. You can work out a three-year or five-year plan to repay a portion of your outstanding debts, including all mortgage arrears and related late fees. This results in a consolidated, reduced monthly installment that can allow you to resume regular payments of your mortgage loan going forward.
To succeed in using Chapter 13 to keep your home out of foreclosure, you must do the following:
- Demonstrate you have total debts of less than $2,750,000 as of the date of filing. This includes secured debts, such as your mortgage loan.
- Show sufficient disposable income to devote to repayment of your unsecured debts. This generally means the income that is left over each month after meeting expenses reasonably necessary for the maintenance or support of yourself and your dependents.
- Establish a repayment plan that meets court approval. This requires showing that the monthly amount specified represents your best efforts to pay back creditors. There is no requirement that creditors approve the plan, though they have the right to raise objections.
- Make timely monthly payments throughout the plan period. If this becomes impossible, you may be able to seek approval for a modified plan.
- Make all regular payments on your mortgage loan on time.
The Chapter 13 proceeding can also give you the opportunity to seek a modification of your mortgage loan, such as by extending the loan’s term or reducing the interest rate. Lenders are more inclined to negotiate with you while the case is in bankruptcy court, since they have an interest in preventing another default. Your Chapter 13 bankruptcy attorney can advise you on this alternative and on other measures you might take to improve your cash flow and creditworthiness.
Jeff Field & Associates is a full-service bankruptcy and debt relief firm with six locations in the Atlanta, Marietta, and Athens areas of Georgia. Contact us online or call 404-381-1278 for a free initial consultation.