Facing foreclosure on your home is one of the scariest and worst things you could face in life. While facing a foreclosure is a catastrophic event to go through, you might be able to stop the foreclosure from happening; however, it may require filing for Chapter 13 bankruptcy.
What Is Chapter 13 Bankruptcy?
Chapter 13 is one of two common branches of consumer bankruptcy. People often use this branch when their income exceeds the qualification guidelines for Chapter 7 or when they need help stopping a foreclosure. Chapter 13 also helps people overcome financial difficulties when they owe past-due balances on IRS taxes, child support, or student loans.
When you file under this branch of bankruptcy, the court will create a three to five-year repayment plan for you. The goal of the plan is to give you time to pay off any of the debts you owe. When you complete the plan, you should be caught up on all your bills.
The court creates a custom plan for you by thoroughly analyzing your income and bills. The court will set a payment amount that allows you to repay all your debts and have just enough money left over each month for you to use for things you need to purchase, such as gas and groceries.
How Does Chapter 13 Stop a Foreclosure?
After filing for Chapter 13, the bankruptcy court will issue an automatic stay. The court will notify every creditor of the automatic stay, and this stops your creditors from trying to collect the money you owe. With the automatic stay, your creditors cannot legally contact you with any method, including phone calls, emails, and letters.
The automatic stay does not only stop creditors from contacting you, but it also stops lenders from continuing with the foreclosure process. Additionally, it stops auto loan lenders from continuing with the repossession of your vehicle.
When your creditors receive this notification, they will know that you are going through a bankruptcy case, and they will know that they must give you time to catch up on your debts. If your creditors do not abide by the automatic stay, then they can get in legal trouble.
For Chapter 13 to help you stop a foreclosure, you must make every payment on time to the bankruptcy trustee. Missing a payment could jeopardize your case and result in losing your home.
What Are the Consequences?
Filing for bankruptcy is not something you should take lightly by any means. When you file, there are consequences, and you should find out what the consequences are before proceeding.
The main consequence you face is the effects of bankruptcy on your credit. Chapter 13 stays on your credit for seven years from the date of discharge. The date of discharge in a Chapter 13 case occurs three to five years after filing, simply because the court does not discharge the case until you complete the repayment plan.
Chapter 13 does have serious consequences, and this is why you should talk to a lawyer about alternative options before you file. There may be other ways to stop a foreclosure from occurring, including a loan modification, and you will need to fully examine all your options to choose the best one for your situation.
Chapter 13 bankruptcy can help you stop a foreclosure from occurring, but you should thoroughly think through this decision before you make it. To learn more about Chapter 13 and its effects on foreclosure, contact the professionals at Law Office of Cowan & Brady. We offer help to people struggling with debt and those facing foreclosures and repossessions.