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Stop foreclosure by filing Chapter 13 bankruptcy

Sat Apr 5, 2008 12:04PM | By Tony

See more in Mortgage | Permalink | Email | Comments (0)

Let me state right away that IMHO, having Chapter 13 Bankruptcy is way better for the credit report than having a foreclosure. So it is another way to stop foreclosure and far from the worst one. Chapter 13 is available to both, self-employed and W-2 individuals with steady incomes. The whole idea is for a homeowner to help paying debt off to all creditors with a new debt management plan, requiring monthly payments for a minimum of three years and a maximum of five years. Currently unsecured debts, e.g. credit card debt cannot exceed $269,250, and secured debts like mortgage or car loan cannot exceed $807,750 for anyone to qualify for Chapter 13 Bankruptcy. Corporations and partnerships may not file Chapter 13.

A big advantage is that consumer is able to pay unsecured debt off, except student loans, without accruing interest and without having to deal with debt collectors. Chapter 13 Bankruptcy can be used to stop foreclosure. Homeowner must file the bankruptcy obviously before the sale date of your property. Far better yet to file before the lender starts proceeding - before Notice of Default is sent. The filing of the petition under Chapter 13 immediately stops ALL collection activity with the Automatic Stay. As long as the Stay stays in effect, creditors generally cannot initiate or continue any foreclosure, lawsuit, repossession, or wage garnishment. Chapter 13 also provides a cosigner Stay, stopping a creditor from trying to collect a debt from someone who cosigned.

Under the bankruptcy deal, the homeowner must repay all past defaults on mortgage debt within a reasonable period of time, normally within 36 months. If the mortgage becomes all due during the Chapter 13, the plan must pay off that entire debt by the due date. Regular mortgage payments have to made as well. The amount of a monthly payment is determined by several factors such as the amount of debt homeowner has, his/her ability to repay, and the assets he/she still has at disposal. The Automatic Stay remains in effect during the life of the case, unless the court orders otherwise. Before, people could always refinance or sell a home while under Chapter 13 to pay off the bankruptcy and move on. A house still can be sold now, but as far as refinancing goes, it can get more difficult and often is useless because of higher interest rates.

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