How Bankruptcy can Keep You from Losing Your Home - PropertyBlawg

How Bankruptcy can Keep You from Losing Your Home

by Ladyblogger on May 23, 2013

(U. S. Property Law and generally) Distressed homeowners facing foreclosure should be aware that there is a way to stop foreclosure, restructure debt, and regain control of your finances. No, it is not a get-rich-quick scheme, it is called reorganizational bankruptcy. More commonly known as Chapter 13 bankruptcy, this type of legal filing allows home owners to save their homes, even if the foreclosure process has been started. Following are several reasons for taking this path, and also some differences in the 2 major types of bankruptcy:

  • Chapter 13 bankruptcy will allow the distressed home owner to stop foreclosure on their home. Through the approval of the Court, the home owner can salvage their mortgage by entering into a Court approved debt repayment plan.
  • One of the best benefits of using Chapter 13 bankruptcy to save a home is that the home owner, at the same time, can have many of their unsecured debts forgiven by the Court. The Court will review a repayment plan that places the most essential bills first on the repayment list. This will include mortgage payments, tax obligations, child or spousal support, student loans, and a single car payment for a non-luxury automobile
  • After all the necessities are met, the Court will then allow the unsecured and non-essential debts to be paid. If there is not enough income to cover these debts, the court will dissolve them to allow the home owner to keep their property.
  • Additionally, Chapter 13 bankruptcy will also allow the home owner to incorporate any past due payments of their mortgage into their repayment plan. This satisfies the lender and allows the home owner to remain in their home during the repayment period.
  • The applicant must commit to a repayment plan that spans 18 to 60 months. During this period the petitioner must make all payments to the Court to have distributed to their creditors. Once this repayment plan is satisfied, the home owner will be discharged from their obligations to the Court and will have a home that is current and free from the foreclosure process.

How a Chapter 13 Differs from a Chapter 7  

Chapter 13 bankruptcy should not be confused with Chapter 7 cases, or absolute bankruptcy. Chapter 7 bankruptcy consists of the petitioner asking for total debt forgiveness. During this process, all assets must be sold to satisfy creditors. This includes any home, car or personal belonging that has any value.

Chapter 7 will not restructure any debt, including debts that cannot be claimed, such as back tax debts and student loans. A person should only opt for this type of bankruptcy protection as a final option.

Home owners may find themselves facing foreclosure for a variety of reasons. Life can place someone is a bad situation regardless of planning or desire. These distressed home owners, however, do not have to face losing their home. They can file for Chapter 13 bankruptcy protection and save their home, restructure their debts, and regain control of their finances.

Author Catherine Stephens is a small business consultant and offers this article for using bankruptcy as an alternative to foreclosure. DebtPayPro offers highly specialized bankruptcy case management software to help manage the intensive workflow and document tracking that is inherent in this field. Its unique CRM platform manages the whole process from beginning to end, providing a smoother servicing experience.

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