A Chapter 13 Bankruptcy can stop a foreclosure, even one that has already been filed. Just make sure your bankruptcy is filed before the sale date.
Once the bankruptcy is filed, all creditor legal actions, including foreclosures, are typically stopped by an automatic stay ordered by the Court.
A Chapter 13 allows a bankruptcy filer to pay back debt over a 3 to 5 year period--but secured debts are paid first. In other words, a person's house and car payment are paid before unsecured debts such as credit cards or medical debt. Pay the debts that matter most, first.
In some cases, depending on the overall household income, only a tiny fraction of credit card debt or other unsecured debt will be paid at all. That means a person whose household income is only enough to cover living expenses, the house payment, and the car payment, may focus their payments on the things that are most important--the house and auto payment.
After the Chapter 13 plan is completed, remaining unsecured debts are discharged forever. Instead of a lifetime of debt repayment, people save their home and get a fresh start after only a few years.
In a Chapter 13 bankruptcy, people must have sufficient current income at the time of the bankruptcy filing to cover their regular mortgage and car payments (if they want to keep both the home and the financed vehicle). However, if they fell behind, and owe back payments on the house, car, or other collateral, they may break up the amount that is owed in missed payments over the length of the plan.
For example, let's say a person has a normal monthly house payment of $1500 and a regular monthly car payment of $300. But they are $3000 behind on their house payments. Perhaps they were temporarily out of work, but they now have income coming in again.
The Chapter 13 plan would involve making a monthly payment of $1500 + $300 to cover their normal, ongoing house and car payments. On top of this, they would repay the $3000 of previously missed mortgage payments--but this amount would be divided over the length of the plan, not paid all at once. In a 5 year (sixty month) plan, that would mean an extra payment of $50 every month, to catch up on the previous missed payments. So the Chapter 13 plan might indicate an approximate monthly payment of $1500 + $300 + 50 + some fees paid to the bankruptcy trustee. After completing the 5 year plan, the bankruptcy filer would be current on their home, having kept up with ongoing monthly payments and having sent in a little extra to catch up on previous missed payments.
Keep in mind that typically, a person going through a Chapter 13 is expected to pay all disposable income through the plan to creditors. But secured creditors, such as one's mortgage lender, are paid first out of available funds. That means that if one's household income is low enough, the bulk of the payments will go to debts that people would prefer to pay, such as the mortgage or car. Remaining funds are paid to unsecured creditors such as credit card companies or medical debt collectors. After the Chapter 13 plan is completed, any remaining unpaid debts owed to unsecured creditors will be wiped away and discharged.
Attorney Eric A. Morgan has helped many people facing foreclosure on their homes. To speak with one of our attorneys about your case, please contact us for a free consultation by calling (321) 253-6223 or by filling out our contact form.
The sooner we begin working on your case, the sooner it can be resolved.