A Chapter 7 bankruptcy cannot save a home from foreclosure, but a Chapter 13 can. In fact, one of the reasons why people choose to file a Chapter 13 over a Chapter 7 is to do just that, especially when there is equity in the home and it’s a valuable asset.
What happens to your mortgage if you do file a Chapter 13 bankruptcy? What if you’re already behind on your loan payments? If you are current on your payments, you get to keep your home and proceed with Chapter 13. But if you are behind on your mortgage, or if you’re threatened by foreclosure, a Chapter 13 would allow you to catch up on your mortgage arrears through the Chapter 13 plan.
Chapter 13 & Other Mortgage Debt
If you have additional mortgage debt in the form of a second or third mortgage, a Chapter 13 may allow you to reduce those additional debts. In certain situations, debtors can strip off junior liens (second and third mortgages), in effect greatly reducing their mortgage debt and giving them the breathing room they so desperately need.
“Can I stop paying my mortgage during my Chapter 13 plan?” Once you file a Chapter 13, the automatic stay goes into effect. This halts all debt collection activity, so it stops the mortgage lender from foreclosing on your house unless it gets the bankruptcy court’s permission. If you want to keep your house, you have to continue making your monthly mortgage payments when they are due.
You make your monthly mortgage payments by 1) paying the lender on your own, outside the bankruptcy, or 2) the bankruptcy trustee pays them through your Chapter 13 repayment plan. “But, what if I’m already behind on my loan?”
If you’re behind on your mortgage, you have the opportunity to pay off the past-due amount through the repayment plan. Once the bankruptcy court approves your repayment plan, the lender cannot foreclose on your home for any arrears accrued before you filed the bankruptcy as long as you continue to pay them off through the repayment plan.
Please note that if at any time during your Chapter 13 plan, you stop paying your mortgage, the lender can ask for the court’s permission to foreclose on your home. To learn more about protecting your home from foreclosure in Harrisburg or York, contact us today.