Stopping foreclosure with a Chapter 13 bankruptcy

On Behalf of | Nov 23, 2018 | Firm News, Personal Bankruptcy |

Most in Hernando County may assume that when one files for bankruptcy, their debts are discharged and they are no longer required to pay for them. This is indeed what happens in a Chapter 7 case, and there is good reason behind this popular assumption; indeed, according to information compiled by the American Bankruptcy Institute, 63.72 percent of all non-commercial bankruptcy filings in the second quarter of 2018 were Chapter 7 cases. Yet people have another option to consider when filing for personal bankruptcy: Chapter 13. This type of bankruptcy is often referred to as a “wage earner bankruptcy” in that filers are still required to pay their debts back over time. 

One might wonder why one would seek a Chapter 13 bankruptcy when a Chapter 7 case allows them to completely discharge their debts. Chapter 13 may end up being one’s only bankruptcy option if they fail to qualify to file under Chapter 7. Yet there may indeed be scenarios where filing for Chapter 13 bankruptcy might be more advantageous. The first (and most obvious) is when one is facing foreclosure. Per the website for the U.S. Federal Judiciary, a Chapter 13 can allow one the chance to get on top of their delinquent mortgage payments over time  (whereas under a Chapter 7, a foreclosure sale is only halted until after the bankruptcy case is resolved). Missed mortgage payments can be included in a Chapter 13’s repayment plan, which means that as long as one is able to keep current on their mortgage payments while working through bankruptcy, any mortgage arrears should be settled by the time their repayment plan ends. 

A Chapter 13 bankruptcy can make keeping current on one’s mortgage payments easier because it allows them to reschedule the payment of all of their other secured debts and make lower payments throughout their case’s 3-5 year repayment cycle.