Past posts on this blog detailed some of the differences between the various forms of personal bankruptcy. Many people in Michigan may wonder why anyone seeking bankruptcy protection would try and file under Chapter 13 given that it does not offer the comprehensive discharge of debts that a Chapter 7 does.

This follows the assumption that those filing for bankruptcy are just trying to avoid having to repay their debts. Yet for most who seek bankruptcy protection, their primary concern (rather than avoiding their liabilities) is to re-establish themselves on firm financial footing.

Avoiding foreclosure

Getting to such a state may become more difficult if one loses many of their personal assets (some of which a bankruptcy trustee may liquidate in Chapter 7 case to settle one’s debts). Typically, the most valuable personal asset people own is their home (indeed, according to The Motley Fool, Americans have more than $10 trillion in mortgage debt). For those who hope that a personal bankruptcy will help them to avoid foreclosure and keep their homes, a Chapter 13 is likely their best option.

As part of a Chapter 13 case, one creates a repayment plan that they then must follow for a period of three-five years. At the end of their repayment period, the court discharges their case (along with the remaining portion of the debts they included in their repayment plans). One can include mortgage arrears in their plans, allowing them to get back into good standing with their lenders. Per Credit Karma, upon filing for Chapter 13, an automatic stay begins, halting any further collection efforts (which can include foreclosure proceedings) against the filer.

Staying current on monthly mortgage payments

Halting foreclosure proceedings through an automatic stay is only the first step in keeping one’s home. They must also remain current on their monthly mortgage payments going forward.