How Chapter 13 can help you save your home

April 30, 2013 (Press-News.org) How Chapter 13 can help you save your home

Article provided by Ehrlich & Arcodia, P.C.
Visit us at http://www.albanymetrobankruptcylaw.com

The decision to file for bankruptcy can be a painful one, but sometimes it is the right one. Chapter 13 bankruptcy, in particular, is ideal for those who are earning a steady salary, but are facing foreclosure. In addition, Chapter 13 can help those who are having problems with their mortgages because of other debt, such as medical bills or credit cards.

How Chapter 13 works

Once an individual files for Chapter 13 bankruptcy, the automatic stay goes into effect. The stay is a court order prohibiting creditors from continuing to collect debts. As a result, lenders must stop the foreclosure process and cannot take further action without the bankruptcy court's permission. The stay is intended to give the individual time to consider his or her financial situation and to allow for the orderly administration of the bankruptcy process.

In Chapter 13, the individual's debts are consolidated into a payment plan to be paid back, at least in part, over a three to five year period. Payments are made pursuant to the plan each month; the amount is determined by the amount of disposable income that the individual has. Instead of making the payments directly to the creditors themselves, the individual makes the monthly payments to a bankruptcy trustee appointed by the court.

The trustee is responsible for distributing the monthly payments to the creditors in order of priority. Creditors holding secured debt--debt that is secured by collateral such as mortgages--are paid first. Unsecured debt--debt without collateral such as credit cards or medical bills--are paid last. As a result, many of the unsecured debts are paid only partially (or not at all) in a Chapter 13 bankruptcy.

As long as the individual makes the agreed monthly payments under the plan, the foreclosure is stopped, allowing him or her to stay in the home. Once the three to five-year period of repayment is completed, the individual receives a discharge from the court. The discharge eliminates the obligation to repay most types of debt that was not fully paid by the plan, such as unsecured debt.

Help with second mortgages

Chapter 13 can also help those who are behind on a second or third mortgage. If the value of the subsequent mortgages exceeds the equity in the house, Chapter 13 may be able to relieve the homeowner of the obligation to repay most, if not all, of the remaining balance of these mortgages. Under the bankruptcy laws, any subsequent mortgage that is secured by a home with insufficient equity is treated as an unsecured creditor, which is paid last or not at all.

Consult an attorney

The bankruptcy process is complicated and has many traps for the uninitiated. An experienced bankruptcy attorney can consider your situation and recommend the best debt relief option for your needs.