Stopping Foreclosure With Chapter 13 Bankruptcy
For some homeowners, Chapter 13 bankruptcy can be an effective way to stop foreclosure and give you time to catch up on the past due payments. In most cases, something called an “automatic stay” is entered as soon as a Chapter 13 bankruptcy case is filed. This stops the foreclosure, giving you the time you need to propose a plan to repay the past due amount over a period of time that can stretch up to five years.
You will be responsible for proposing a Plan that shows your income, expenses, and the amount you propose to pay towards the mortgage arrears each month. You are also required to make your new mortgage payments and to keep them current.
The bankruptcy judge will determine whether your Plan is considered adequate to repay the mortgage arrears. Once the judge confirms the Plan you can rest assured that the foreclosure will not go forward so long as you abide by the terms of the Plan.
Though Chapter 13 is an extremely effective way to stop a foreclosure – and the only legal way to force a lender to stop taking action – it should be the last resort for you. If you file a Chapter 13 and the case is dismissed for any reason, you may be limited in the scope of the automatic stay the next time out.
In addition, when you file a Chapter 13 you are required to make your new mortgage payments as well as propose – and follow through on – a plan to repay the arrears. If you are unemployed or have insufficient income this may not be a realistic option for you.