How Chapter 13 Can Save Your Home From Foreclosure

Foreclosure can be devastating for homeowners, but Chapter 13 bankruptcy is a powerful legal tool that can help prevent this outcome. Also known as a wage earner's plan, Chapter 13 allows an individual or couple with steady income to repay part of their debts over a three to five-year period. Such a plan can be particularly advantageous for homeowners who need time to catch up on mortgage arrears.

When you file for Chapter 13 bankruptcy, the bankruptcy court issues an automatic stay, which halts all collection actions by creditors. The stay blocks your mortgage holder from filing or pursuing a foreclosure action. The automatic stay remains in effect for the duration of the Chapter 13 case, thereby affording relief from the threat of losing your home.

A Chapter 13 repayment plan lets you pay off mortgage arrears over a period of three or five years, depending on your income and debt levels. Although your mortgage remains in force, a Chapter 13 can give you leverage in negotiating with your mortgage lender for better loan terms. The lender may be willing to lower your interest rate, extend the loan term or even reduce the principal balance.

This willingness often stems from the fact that lenders understand that Chapter 13 gives you the legal right to restructure your debts, and they may prefer to work out a loan modification rather than risk the uncertainty and delay that comes with a prolonged bankruptcy case. Furthermore, the automatic stay in Chapter 13 provides you with the breathing room to explore these options without the immediate threat of foreclosure.

Chapter 13 bankruptcy also gives you the opportunity to discharge some of your unsecured debt, such as credit card balances or medical bills. A Chapter 13 plan does not require full repayment of these debts. Rather, it allows you to make the maximum payment permitted by your disposable income. By paying off and partially eliminating unsecured debt, you can free up more of your income for your mortgage payments and other essential expenses. This can help you avoid falling behind in the future.

Navigating the complexities of Chapter 13 can be challenging, but with the assistance of a skillful bankruptcy attorney, you can protect your home and regain financial stability. 

Marlin Branstetter, Attorney at Law in Anaheim, California, has the experience and knowledge to advise you on how Chapter 13 can safeguard your home, lower your monthly expenses, and allow you to discharge qualifying debt. Call me at 714-276-8589 or contact me online to schedule a free initial consultation.