Chapter 13 bankruptcy is a powerful debt solution for those looking to reorganize their debts in such a way as to prevent homes from being foreclosed or a vehicle from being repossessed. The focus of this article will be on using Chapter 13 to save your home. Foreclosure proceedings must immediately terminate upon the filing of a Chapter 13 bankruptcy case, allowing debtors breathing room to submit a plan of reorganization to the court.
Generally speaking debtors can use the Chapter 13 bankruptcy process to get current with their lender over a 3-5 year period. For example, if the debtor was $20,000.00 in mortgage arrears at the time of foreclosure and files for Chapter 13 protection, the debtor could propose a plan to make up the $20,000.00 arrears over the next 36-60 months, depending on the debtors monthly income. In this example, the estimated payment would be about $350.00 per month at 60 months, which includes the Chapter 13 trustee administration expense.
Upon the filing of the Chapter 13 bankruptcy the debtor will resume making their next normally scheduled mortgage payment directly to their mortgage company. Within 30 days of filing the bankruptcy case they will also commence making their Chapter 13 plan payment directly to the Chapter 13 trustee, in this case $350.00, which will be distributed by the Chapter 13 trustee to the mortgage company to pay down the $20,000.00 arrears due on the date of filing. In most cases the debtor need not even pay interest to the mortgage company for the arrears portion that gets paid by the Chapter 13 trustee. As long as the debtor continues with their ongoing mortgage payment to their lender and makes the monthly Chapter 13 plan payment to the trustee, they will be protected from further foreclosure proceedings by creditors. Once they have completed all plan payments (3-5 years), they will exit from the bankruptcy and be completely current with their mortgage.
Another key benefit of Chapter 13 for debtors facing foreclosure is additional loss mitigation options offered by mortgage servicers. More often than not, when a debtor files for Chapter 13 bankruptcy relief the mortgage servicer will transfer the servicing of the mortgage to a special servicer, usually a bankruptcy servicer and/or bankruptcy law firm. This special servicer will usually have additional loss mitigation resources that would otherwise not be available to the debtor outside of bankruptcy. It is not uncommon for the debtor to receive a loan modification offer from this special servicer, even in situations where the debtor has been previously denied a loan modification before filing for bankruptcy protection. If the debtor elects to accept the modification then it may not even be necessary to continue with the Chapter 13 bankruptcy and the case can be dismissed or converted to Chapter 7 (if the debtor had unsecured creditors as well). Accordingly not only does Chapter 13 allow the debtor a fresh start and ability to reorganize their financial affairs tailored to their budget and specifics, it can be used as a powerful tool in securing additional loss mitigation options which ordinarily might not be available to the debtor outside of bankruptcy.
Written by Michael G. Doan–
Owner of the Oceanside Bankruptcy Attorney office, Michael not only manages his business, but is also a highly skilled San Diego Bankruptcy Attorney with over 20 years of experience. He specializes in many fields, such as: insolvency, bankruptcy, consumer rights, debt negotiation, creditor collection abuse, estate planning, contracts, real estate, and tax. Michael is currently concentrating his practice solely in Bankruptcy Law and is a Board Certified Specialist in Consumer Bankruptcy Law by the American Board of Certification, one of only fourteen such attorneys in all of California. Mr. Doan also practices on the cutting edge of bankruptcy law, and was the first attorney in the entire Southern District of California to file the very first Chapter 7 Bankruptcy and very first Chapter 13 Bankruptcy under the new Bankruptcy Laws which went into effect on October 17, 2005.
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