If you have fallen behind on your mortgage payments and are facing the threat of foreclosure, Chapter 13 bankruptcy may offer a way to keep your home. This form of debt relief will allow you to restructure your debt and catch up on payments over time—potentially making it possible to sidestep foreclosure altogether.
Chapter 13 is sometimes called a “wage earner’s plan” because it is designed for people with regular income who need time to catch up on their obligations. If your mortgage lender has started the foreclosure process, it should be halted after you file, because filing for Chapter 13 triggers an automatic stay. This legal action temporarily stops all collection efforts, including foreclosure, giving you time and breathing room to work out a plan.
Executing a plan
When you’re paying down a Chapter 13 repayment plan, you can include past-due mortgage payments and spread them out over three to five years. As long as you continue making your regular monthly mortgage payments and follow a court-approved plan, you can keep your home and avoid losing it to foreclosure. This option is often especially helpful for homeowners who hit a temporary financial setback—like a job loss or medical emergency—but can afford to make payments again with a little bit of time and space.
Another benefit of Chapter 13 is that it can help you deal with other types of debt as well, such as credit cards, personal loans and unpaid taxes. Managing all your debt in a single plan can free up money to cover your mortgage and living expenses more easily.
Not everyone qualifies for Chapter 13. You must show that you have enough income to stick to a repayment plan, and there are limits on the amount of secured and unsecured debt you can carry while your current debt is being paid down. Still, for many homeowners, it is a powerful tool for taking back control and keeping their homes.
