How Chapter 13 Can Help Homeowners Facing Foreclosure

There are many methods by which homeowners may find help to avoid foreclosure, but in using chapter 13 bankruptcy foreclosure may be eliminated more easily than most. Not only does the process provide financial advice and counseling to help the homeowner build better financial planning skills, but it also provides the opportunity for them to pay down their arrearages on their mortgages and other loans with a plan that fits their budget. Finally, it may allow debtors to erase or cram down some bills to relieve the financial pressure they have been under

Chapter 13 Bankruptcy

There are two primary types of bankruptcy used by most individual filers:

• Chapter 7 – by which the filer discharges most of their debts in exchange for liquidation of non-exempt property in some cases

• Chapter 13 – by which the filer reorganizers their finances and prepares a repayment plan that allows them to catch up on late and missing payments and pay off much of their debt

Chapter 13 bankruptcy is often a more permanent solution and it can be more likely to allow a homeowner to save their home from foreclosure. Several elements enable chapter 13 bankruptcy to provide this kind of powerful help.

• Automatic stay – the court places a hold on all collection efforts by creditors throughout the bankruptcy process, giving the debtor time to reorganize and catch their breath from credit problems

• Credit counseling – required for all filers in order to ensure that they will not only make the most of the bankruptcy process, but that they will use their credit more wisely once the bankruptcy plan is put into action

• Repayment plan – formulated by the borrower and their attorney, then submitted to the bankruptcy trustee and the court. This plan allows debtors to pay down their debts in a specific priority, within the amount of their disposable income, and generally lasts between three and five years, depending on the income of the filer

• Discharging debt – within the repayment plan, some secured debts may be crammed down, or trimmed to reflect the actual value of the property that secures them, and at the end of the plan, much of their remaining unsecured debt may be discharged, or erased. In addition, if the debtor’s home is worth the same or less than their first mortgage, any second or third mortgages may be reevaluated as unsecured debt and discharged

• Debt education – the plan ends with a course in handling debt to better enable the debtor to handle credit after the bankruptcy process is complete.

Getting Legal Help with Chapter 13 Bankruptcy

While there are additional means to avoid foreclosure that do not carry the severe consequences bankruptcy does, bankruptcy may often be the last, best choice for a homeowner in financial trouble. However, because the process is so complex, it can be difficult to realize all of its benefits and avoid all of the pitfalls without expert legal help from a dedicated bankruptcy attorney.