People often work for years to achieve their goals of homeownership. They may need to improve their credit after youthful bad decisions. They likely need to save money for a down payment and closing costs. They must optimize their income so that they qualify for a competitive mortgage.
After buying a home, they may spend as long as three decades paying off the mortgage. Until the mortgage balance reaches zero, the owner could be vulnerable to foreclosure. The property serves as the collateral for the mortgage. If the homeowner misses four or more payments, their lender may initiate legal foreclosure proceedings. In such scenarios, Chapter 13 bankruptcy may be one of the best sources of relief available.
Filing can delay foreclosure
When an individual files for bankruptcy relief, they may have a long wait before they receive their discharge. In a Chapter 13 case, fulfilling a repayment plan that lasts at least three years is a prerequisite for the discharge at the end of the process. Those facing foreclosure cannot wait three years to address their missed mortgage payments and pending foreclosure. The same day that they file, the courts grant an automatic stay. All collection activity typically stops the same day that the filer submits documents to the courts. If there is a pending court case, the creditor or the courts typically need to dismiss the case until the resolution of the bankruptcy case.
Filing can help with loan modifications
As mentioned above, Chapter 13 bankruptcy involves a structured repayment plan that lasts from three to five years. Filers typically negotiate the terms of that plan to make their monthly payments fit with their household budget. Mortgage lenders may be open to modification negotiations before or during repayment plan discussions. Homeowners may be able to reduce their monthly payments, increase the repayment period or even move the missing payments to the end of the loan so that they don’t have to come up with thousands of dollars to avoid foreclosure.
Eliminating debts can lead to a balanced budget
When those who file for Chapter 13 bankruptcy complete the process successfully, the courts can discharge the remaining balance on eligible unsecured debts. The elimination of credit card balances, medical debts and other financial obligations can take the pressure off of a homeowner’s budget. It can be much easier to make mortgage payments on time every month when there are fewer secondary financial obligations.
Preparing for a Chapter 13 bankruptcy can help those facing foreclosure preserve their most valuable resource. A prompt bankruptcy filing can halt foreclosure and help address the issues that led to missed mortgage payments.