The one thing that many people worry about the most when they are struggling financially is losing their home. For those who are eligible, Chapter 13 bankruptcy may be the best way to avoid foreclosure and get back on track economically.
What is Chapter 13 Bankruptcy?
Chapter 13 is a repayment plan, approved by the court. The person must have a regular income high enough to meet the scheduled payments over the three to five-year term of the repayment plan. During the repayment period, they must live on a budget; there will be no fancy vacations during this period, but the home can be saved. The total amount of debt cannot be higher than $1,149,525 for secured debt and $383,175 for the unsecured debts. No property will be lost, and the mortgage is unchanged.
Before the bankruptcy can be filed, it’s necessary to receive credit counseling from an approved agency. The counseling will be provided at no charge if the fee cannot be paid.
As soon as the bankruptcy is filed with the court, all creditor actions must cease, including the foreclosure. There will be no more harassing phone calls or demand letters.
When people are threatened with foreclosure, they are normally several months in arrears on the mortgage payments, which the mortgage lender undoubtedly wants in one lump sum. Chapter 13 allows the back mortgage payments to be paid off over time as part of the repayment plan. The current mortgage payments, however, must be paid each month as scheduled in order to keep the home. It may be possible in certain circumstances to remove bank lines of credit and second mortgages.
The Repayment Plan
Some debts must be paid in full, including alimony and child support, some taxes and wages owed to employees. The repayment plan will include regular payments on secured debts such as car loans and the mortgage and repayments on the past due payments. Unsecured debts such as medical bills and credit cards will be paid with any leftover disposable income; normally, this will only be for a portion of these balances or nothing at all.
If you’re faced with foreclosure, Chapter 13 could be the answer. It’s not a quick fix, but it’s an opportunity to save your home and get your financial life back in order.
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