Dealing with a Mortgage/Should You Try to Keep Your House?

Memphis Bankruptcy, Social Security Disability & Long Term Disability Attorney

Chapter 13 Bankruptcy and Your Mortgage

Chapter 13 is sometimes referred to as “wage earner.” This is because it’s meant for people who are looking to pay back their debts with their regular income. Chapter 13 bankruptcy is a reorganization of one’s finances that allows individuals to pay back creditors over a 3-5 year period, based on their debt.

Chapter 13 is unique in the way that it provides individuals with a chance to keep their home and possibly stop foreclosure. Chapter 13 provides these advantages through payment plans. Staying current on the payments in Chapter 13 is one way that it is possible to keep your property throughout the process. 

Although Chapter 13 may take longer, more time is allotted to make payments, which is why keeping the property that you own is manageable. 

John Dunlap has experience in this area and is willing to help your case. Contact our offices for assistance in Chapter 13 and get a free 30 minute session. 

Advantages of Bankruptcy Chapter 13

Filing for Chapter 13 bankruptcy can seem intimidating. However, there are some great advantages to filing  Chapter 13 such as: 

  • repay missed mortgage payments through a repayment plan
  • pay a fraction of unsecured debts during the payment plan period 
  • eliminate additional debts 
  • make payments based off of your approved budget 
  • potentially stop foreclosure 

What Can You Keep in Chapter 13?

One of the top reasons that Chapter 13 bankruptcy is a good option is that it enables individuals to develop a repayment plan for all or part of their debts. A question that is most frequently asked is what can you keep in Chapter 13? In many cases, the owner may be able to keep most or all of the property that they possess. 

You can use Chapter 13 to: 

  • prevent a house foreclosure
  • make up missed car or mortgage payments
  • pay back taxes, stop interest and penalties from accruing on tax debt 
  • keep non-exempt property

Chapter 13 bankruptcy offers a protection of property that is paid over the 3-5 year plan.  In Tennessee, individuals typically can keep everything they own under Chapter 13. See Tennessee’s exemptions. These payments will be included in the Chapter 13 repayment plan (potential link?)

Chapter 13 and Mortgage Payments 

Chapter 13 bankruptcy mortgage payments, allows individuals to pay the ongoing  payments. Typically, individuals continue to pay on the mortgage directly to the lender outside of bankruptcy. However, payments may have to be made through the bankruptcy trustee, which will take care of disbursing the amounts that one owes. 

Chapter 13 bankruptcy and mortgage means you can take past due payments on your mortgage and pay them back in the repayment plan. These overdue payments on your mortgage are called “arrearages.” 

If individuals are looking to buy a home after Chapter 13 bankruptcy, mortgage loans such as a Federal Housing Administration (FHA) loan, may offer a solution to obtaining that goal. An FHA loan is a mortgage issued by an FHA-approved lender. It is insured by FHA and is specifically designed for low-to-moderate income borrowers. 

Some of the conditions that have to be met in order to qualify include:

  • paying a minimum of 12 months of the payment plan
  • FHA loan approval
  • proof that the individual will likely not file bankruptcy again

Chapter 13 Foreclosure 

When a borrower cannot afford to keep up with their monthly mortgage payments, the bank will foreclose on the property in order to collect the money that was lent to the individual. If an individual files for Chapter 13 bankruptcy, they may not lose their property or be forced to give up their home. Additionally, Chapter 13 may not affect mortgages and can potentially keep your home from foreclosure. Past-due amounts are broken up into small, manageable blocks and paid back over the life of the Chapter 13 plan.

During Chapter 13 bankruptcy foreclosure, Chapter 13’s automatic stay provision can stop foreclosure once the petition is filed. Automatic stay prohibits creditors from taking action outside the bankruptcy to collect anything that is owed to them from the debtor. Automatic stay will go into effect once the petition is filed. This is why filing Chapter 13 as early as possible can be beneficial to your financial situation. 

Foreclosure during Chapter 13 may be stopped. If you want to take advantage of this benefit, filing Chapter 13 before the foreclosure sale date will potentially halt the process. Additionally, if you stay current on your mortgage payments, and make up the overdue payments outlined in the plan, the lender cannot foreclose.

Bankruptcy can be an intimidating process. However there are many advantages that accompany Chapter 13. With the help of our experienced bankruptcy lawyer, may be able to put you on the path to financial recovery. We offer free 30 minute strategy sessions to talk with our experienced bankruptcy law firm staff and figure out what the best option might be for you and your individual situation.