Catching Up On Past Due Mortgage Payments in Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows debtors to keep their home while they catch up on late mortgage payments.  In chapter 13 bankruptcy debts are not quickly eliminated in exchange for the sale of non-exempt assets.  Instead, debts are wholly or partially repaid through a repayment plan lasting 3 to 5 years.  At the end of the repayment plan remaining unsecured debts which are eligible for discharge will be eliminated.  Therefore, any remaining credit card debt and medical bills will be eliminated upon completion of the chapter 13 plan.

Foreclosure?  Chapter 13 is the Answer

One common reason for filing chapter 13 bankruptcy is to save a home from foreclosure.  Upon filing a bankruptcy petition section 362 of the Bankruptcy Code requires foreclosure proceedings to cease.  Therefore, if a client files chapter 13 bankruptcy on Monday a Trustee’s sale cannot commence on Tuesday.  While the stay of foreclosure proceedings is immediate upon filing this should not be an incentive to wait until the last minute to consult with a bankruptcy attorney.  By speaking with a bankruptcy attorney early on in the foreclosure process a well drafted chapter 13 petition and repayment plan can be submitted well in advance of the scheduled Trustee’s sale.

Unlike chapter 7 bankruptcy, chapter 13 bankruptcy allows individuals to keep their home after bankruptcy.  In chapter 7 bankruptcy the automatic stay will cease the foreclosure proceeding, but only for a limited time.  Eventually the lender will be able to seek recompense through their lien on the home as the debtor will remain in default.  In contrast, chapter 13 bankruptcy allows the debtor to cure their default by repaying late mortgage payments over 3 to 5 years.  Once the plan has been satisfied and the late mortgage payments repaid the debtor will no longer be in default; accordingly, the lender will not be able to foreclosure upon the home.