Falling behind on bills and struggling with debt could lead to a situation where a homeowner faces foreclosure. Fortunately, Chapter 13 bankruptcy offers a potential lifeline for those looking to avoid losing their homes.
This legal option has a couple of important features that can stop the foreclosure process and enable a person to get back on track with mortgage payments.
Help from the automatic stay
The automatic stay goes into effect immediately upon filing bankruptcy. It halts all collection efforts, including foreclosure proceedings. This provision gives homeowners breathing room to reorganize their finances and work out a repayment plan to catch up on missed mortgage payments.
Creation of the repayment plan
The repayment plan is the hallmark of Chapter 13 bankruptcy. It allows the filer to pay off debts instead of liquidating assets. This plan will outline debt repayment over a period of three to five years. It must be feasible for the person’s income, and the court must approve it.
Once the plan is in place, the person must make regular payments to the bankruptcy trustee. The trustee then distributes the funds to creditors according to the repayment terms. The filer must make these payments on time and in full. Failing to stick to the plan can result in the dismissal of the bankruptcy case and the resumption of foreclosure proceedings.
Chapter 13 bankruptcy can be a powerful tool for saving a house from foreclosure. However, individuals must remember that after the bankruptcy discharge, they have to continue to make payments according to the terms of their mortgage agreement to avoid future foreclosure action.
