Can I Be Foreclosed On if I’m in Chapter 13 Bankruptcy?
Filing for chapter 13 bankruptcy may help people save their homes from foreclosure. People may fall behind on their mortgages for numerous reasons, some temporary and, others, more permanent. Regardless of the cause for late payments, mortgage lenders in these situations may move to recover their investments through foreclosure proceedings and the eventual sale of the property to another purchaser.
Chapter 13 Offers A Path to Avoid Foreclosure
Chapter 13 filings allow homeowners who have fallen behind on their monthly mortgage payments the opportunity to catch up on delinquencies. Upon receipt of bankruptcy petitions, the clerk’s office issues an automatic stay for creditor actions against filers. Through other debt-relief actions, this may only delay the inevitable. The chapter 13 bankruptcy process, however, provides a path for people to keep their lenders from resuming foreclosure activity once the court lifts the stay.
The Automatic Stay
A type of restraining order, the automatic stay temporarily prevents creditors from taking certain actions against those who declare bankruptcy. For example, this may include making collection efforts such as calling debtors or sending them letters, as well as initiating or continuing with foreclosure proceedings on a property. Such orders do not provide homeowners facing foreclosure with a permanent solution. Rather, they allow time for people the time and ability to make repayment plans or alternative arrangements.
The Repayment Plan
The cornerstone of chapter 13 bankruptcy cases, the repayment plan offers people the opportunity to catch up on delinquent mortgage payments. Along with their petitions, or within 14 days of filing for Chapter 13 bankruptcy, people must submit to the court a proposed repayment plan. The plan must provide for disbursement of filers’ disposable income toward the repayment of any priority claims in full, as well as the secured claims for which people want to retain the associated collateral, over a three- or five-year period.
Insured by people’s homes, mortgage loans qualify as secured debts. To retain their properties and avoid the resumption of foreclosure proceedings, people must account for mortgage arrearages in their repayment plans. Additionally, they must continue to make their scheduled payments following their initial lending agreement. Therefore, homeowners wishing to protect their properties from foreclosure through chapter 13 filings may have to make monthly payments toward their past-due amounts to their case trustees as part of their repayment plans while staying current with their regular mortgage payments as they come due.