It is not unusual for folks to find themselves behind on their mortgage or in foreclosure because something unexpected happened in their life. These unexpected events include, but are not limited to temporary unemployment, illness in the family or an unavoidable repair expense. A Chapter 13 Bankruptcy is a useful tool to save your home from foreclosure. If you have any type of regular income such as employment, retirement or regularly received funds from any source, you can use these funds to structure a plan to pay back the default due on your past due mortgage. This is true whether you are only a few months behind on the mortgage, already in court foreclosure proceedings, or even if the house is set to be auctioned.
Immediately upon filing a Chapter 13 Bankruptcy petition an order called an “automatic stay” goes into effect prohibiting the foreclosure from proceeding. The Bankruptcy petition can be filed electronically by an attorney, creating an immediate freeze on the foreclosure process.
An attorney can prepare what is called a “Bankruptcy Plan.” The Plan will include a monthly budget which takes into consideration all of your regular monthly expenses necessary for living, including making your regularly scheduled monthly mortgage payment. The attorney will work with you to try to identify excess funds that can be used over a period of three to five years to pay back your mortgage arrears in monthly installments.
Often individuals will have a second and third mortgage or home equity lines of credit (referred to as “HELOCs”) attached to their homes in addition to their first mortgage. The payments on these second mortgages and HELOCs can be just enough to create havoc in a personal monthly budget. It is sometimes possible to remove these additional mortgages or HELOCs entirely in a Chapter 13 Bankruptcy proceeding. If the value of your home is less than what you owe on your first mortgage, it may be an option to entirely remove the additional mortgage or HELOC.
The Chapter 13 Bankruptcy can simultaneously assist with other debts which may be behind such as car payments, taxes and family support payments. In addition, during the three to five year period you can create a plan to wipe out your unsecured debt also (such as credit cards and medical debt). At the end of the Bankruptcy case, your mortgage will be up to date and you will be free of other debt.
The reader of this summary should remember that this summary does not constitute legal advice. Every case is different. You should consult an attorney about the specifics of your case.